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US Emerging Domestic Market (EDM) Overview
The Emerging Domestic Market (EDM) is one of the fastest-growing sectors of the US private equity investment market. “EDM” is a term used to describe the geography and demography of markets traditionally underserved by the financial services industry. These include markets serving individuals of Asian American, African American, Latino, Native American and other ethnic backgrounds as well the businesses they own and the enterprises that primarily serve their communities.
NAIC uses the term to define the asset class targeting businesses that are significantly owned by people of diverse racial and ethnic origins as well as companies that serve ethnic communities.
Shifting population demographics in the United States, combined with rising educational attainment among people of color and increased ethnic and gender diversity among the nation’s business owners, have converged to create a dynamic economic landscape. As compared with investment in emerging markets abroad, EDM investment offers the conveniences of proximity between investors and company managers; political security; no currency conversion issues; and a familiar regulatory and legal environment.
Despite these advantages and the growth of the sector, which has outpaced that of the mainstream business community, the amount of private equity capital targeting to EDM businesses has in the past been limited. Historically, EDM entrepreneurs have relied more heavily on commercial lenders than have entrepreneurs overall to fund their enterprises. Economists and entrepreneurs agree that equity funding is essential to the next stage of EDM firm development. As noted in In Your Own Backyard: Investment Opportunities In Emerging Domestic Markets, “this is because venture capital or ‘smart money’ offers entrepreneurial advantages that debt funding does not.” The study notes that the “strategic partnership and operational benefits of equity funding will allow promising entrepreneurs to stretch into the industry sectors that are ripe for growth in the economy overall.”
An increasing number of institutional investors and investment firms are now looking to explore opportunities within the EDM. What many lack, however, is a familiarity with the nuances of this particular asset class as well as professional relationships that lead to successful investments.
NAIC member firms are among the nation’s pioneers and leading experts of private equity investment in the EDM asset class. With more than $10 billion under management, the majority of which is currently provided by public pension funds, these emerging managers are demonstrating not only their professional competence, but the robust potential for significant returns that the EDM offers to investors who work with them to adopt and pursue an EDM investment strategy.
More information about the Emerging Domestic Markets can be found online at:
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