That would be the United States, according to a recent academic paper that ranks 118 countries by their attractiveness to private equity investors. But of more interest perhaps are the 14 countries that stand out for having made substantial gains in attractiveness over the last five years. They are Chile, Colombia, Estonia, Finland, Indonesia, Lithuania, Malaysia, Mexico, Morocco, Oman, Peru, the Philippines, Russia and Turkey. The paper, Private Equity Growth in International and Emerging Markets, by Alexander Peter Groh, is written by professor of finance at the Emlyon Business School in Ecully, France.
To rate markets by their private equity attractiveness, Groh developed an index based on six “key drivers.” First is economic activity, including such measures as an economy’s size, diversity and employment; second is the depth of the capital markets and their ability to support lending and a liquid exit market; third is the level of taxation; fourth is investor protection, such as the protection of property rights, and corporate governance; fifth are cultural factors such as a strong educational system and flexibility in employment policies; and sixth is an entrepreneurial culture that encourages investment in R&D.
Groh writes in his paper that “a country must rank highly on each of the individual criteria for it to be ranked highly in our overall index.”
As the top-ranking country, the United States was assigned a score of 100 and all others followed accordingly. Canada, Singapore and the United Kingdom come after the United States, with scores in the mid-90s; then come Hong Kong, Japan, Germany and Australia, with scores in the low 90s. Twelve countries have scores in the 80s: In descending order they are Sweden, Switzerland, New Zealand, Norway, Malaysia, the Netherlands, Belgium, Denmark, South Korea, Finland, Israel and France.
The absolute bottom-ranking country? That would be Burundi, an exceptionally poor country of about 9.9 million people located in southeast Africa with a GDP of about $2.5 billion, according to the website of The World Bank.