The merits of private equity

• Author: Roger Leeds
• Position: Professor Johns Hopkins School of Advanced International Studies Washington

Like virtually everyone who tracks and analyzes financial flows to developing countries, the authors of the otherwise excellent analysis in the F&D article, "Financial Globalization, Beyond the Blame Game" (March 2007), completely ignore private equity, which is playing an increasingly important role in developing countries, and focus on FDI and portfolio equity flows.

They are correct that FDI is less likely to head for the exits at the first whiff of crisis. Yet private equity, which is endowed with the same long-term, growth-generating features and arguably makes an even more important contribution to private sector development, merits nary a mention. Most private equity investors target worthy companies with limited or no access to capital, and financial returns materialize only when and if they enhance company performance. These firms are not listed on stock exchanges but have promising prospects for growth and profitability if they could gain...