So you really believe what a private equity fund manager says? That’s a bit risky: 77% of them state that they belong to the top 25% . It sounds like China’s GDP which grows, despite everything (SARS, Global crisis, environmental mayhem, people without retirement, half of the country without electricity and basic services, declining electricity consumption, riots in its muslim part, fear of Tiananmen celebrations…): a plain and so obvious lie that no one dares to ask a question. The kind of approach which produced interesting results (yes, Madoff – again!). The problem with lies is that sooner or later, they get to be discovered – and here, you cannot send the Chinese government in prison and look for the cash in their wives safes.

So what’s new under the sun of private equity? Well, the fact that as VC (in the US), (large/mega) LBO and probably funds of funds will show soon deceptive performances (to say the least), general partners are trying to sell us something else. What is it? BRICs! Follow my lead:
1. « US and Europe are in a mess» . Granted.
2. « Some countries are not: Brazil, China, India, Russia» . Errr… ok, let’s assume.
3. « They are young»  (ok, discount Russia here, because actually it’s not true), « willing to consume»  (we know where this has lead the world… but hey, we are talking about short term mess, not long term), « and gifted with purchasing power»  (really? how? in monkey money? how can they consume when we are paying them like… Chinese/Indian workers? and what actually are they consuming? Expensive products from the West that even westerners cannot afford at the moment?)
4. « So, as we are in private equity, and great managers – top quartile, blah, blah, unrealized performance, blah, blah, fair market value, beurk, beurk, but glorious old days again, tagada, tagada… – we plan to go and colonize (financially) speaking these countries. Sign here, and wire the money on my private account.»  True, it’s so much simpler than charging 2% per year (after all, you have to wait 10 years to get all the cash…)

Now, let’s imagine that it’s not your pension/insurance money which is at stake.

i) Russia and China are dictatorships
ii) Dictatorships have no problem to manipulate data
iii) Russia and Brazil ‘miracles’ rely on natural resources
iv) China and India do not address their social issues (poverty gap), nor their retirement and health issues
v) Culture in the four countries is radically different than in the US and Europe
vi) The fund managers talking to you are from US and Europe
vii) They are former investment bankers and consultants who have strongly contributed to create the mess in EU and the US

Do you still really want to invest with them in the BRICs?