Long-Run Returns to Private Equity in Emerging Markets

We provide the first evidence on the long-run returns to private equity in emerging and frontier markets using the cash flows from every equity investment made by the International Finance Corporation across 130 countries over 58 years. Risk-adjusted returns are comparable to the S&P 500, at least from 1961 until 2010. Returns improve with economic growth but decline as banking systems deepen and countries relax capital controls. These results are consistent with the thesis that financial frictions have prevented the flow of capital from rich to poor countries and that the persistence of impact investors’ performance may rely on identifying or creating new markets that lack access to capital. This paper was accepted by Agostino Capponi, finance. Conflict of Interest Statement: Shawn Cole served five days as a “Short Term Consultant” to the IFC in 2018–19 and in a non-compensated advisory role for Y Analytics, a subsidiary of impact investor TPG/Rise. Martin Melecky, Florian Mölders, and Tristan Reed are employees of the World Bank Group. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.03313 .