Private Equity in Frontier Markets: Creating a Fund in Georgia

George Bachiashvili, deputy CEO of the Partnership Fund, is asked by the Prime Minister of Georgia to create an investment vehicle funded entirely with private capital for local investments. The goal is to spur foreign investment and stimulate long-term economic growth in the country. Having no precedent for such a vehicle in Georgia, George has to identify best practice from other sources to get it off the ground. Georgia clearly needs capital but is not on the radar of most international investors. However, the US$1 billion anchor investment pledged by the PM with no strings attached gives it some serious chips in the game. Even so, “frontier markets” are among the most challenging contexts in which to raise private funding, as capital deployment is often hindered by an unstable political environment, weak institutions and corruption. The task is daunting but, if successful, could transform the economy. The case describes in detail the different options for finding investors.

Students should be able to address the following issues: 1. Identify the mission of the fund, and the strategic and financial goals behind it. 2. The type of additional investors to be targeted for this type of fund e.g., global or regional, pension funds, funds of funds, sovereign wealth funds, high net worth individuals, family offices, development finance institutions. 3. Draw up a comprehensive investment strategy for such a fund. 4. Identify which private equity fund structure would best enable George to fulfil the fund’s strategic and financial objectives, satisfy the needs of the LP base, and execute his investment strategy.