Emerging Markets Poised to Take PE Share Away From Developed Markets
Washington, D.C. – Global limited partners (LPs) continue to expect their commitments to emerging markets private equity (EM PE) to increase, reflecting investor optimism about these markets’ ability to outperform developed markets, according to the latest EMPEA Global Limited Partners Survey.
- Three-quarters (75%) of LPs expect their commitments to emerging markets to increase over the next two years. By contrast, only 26% of LPs anticipate they will expand their investments in developed markets over the same time period.
- 72% of LPs expect 2011-vintage EM PE funds to deliver net returns of at least 16%, compared with only 26% of LPs believing the same of developed market PE funds.
- More than half of LPs (57%) expect that emerging markets will account for 16% or more of their total PE allocation in two years’ time, in contrast to 2004, when 61% of LPs had no allocation directed toward EM PE.
- While Brazil still stands to see the largest influx of new investors, LPs are increasing their focus on the less-penetrated markets of Latin America, Southeast Asia, Sub-Saharan Africa and Turkey – all poised to see increased commitments. Particular markets of interest in these regions include:
Latin America beyond Brazil – Mexico, Colombia, Peru
Southeast Asia – Indonesia, Vietnam, Malaysia, Thailand
Sub-Saharan Africa – South Africa, Nigeria, Kenya, Ghana
- Latin America beyond Brazil has edged out Brazil itself as the most attractive destination for dealmaking, with Brazil, China and Southeast Asia following close behind.
The predicted increases in the share of PE allocations aimed at emerging markets reflect the overall patterns seen in global PE fundraising data: in 2011, emerging markets captured 15% of the total PE capital raised, up from only 4% of the global total in 2004, according to EMPEA 2011 Year-End Fundraising Statistics.
“This year’s LP survey responses indicate that investors are continuing to shift capital from developed to developing countries in search of returns, which is consistent with EMPEA’s market data, and we expect this shift to continue for the foreseeable future,” said Sarah Alexander, President and CEO of EMPEA. “While China and Brazil are still very attractive, LPs are recognizing the opportunities in other less-penetrated markets, such as Indonesia, Nigeria and Colombia. Deployment constraints are preventing capital from flowing in fast enough to catch up with investor interest – in short, demand is outstripping supply.”
Brian Lim, Partner at Pantheon Ventures, commented on the current investor optimism toward EM PE, “The picture has changed from over a year ago, sentiments have changed and the clouds are lifting. Investors in these markets are feeling more positive from the bottoms-up fundamentals in their portfolios because the health of the underlying companies have picked up.”
An investor from a large U.S. corporate pension articulated why EMs continue to be attractive, “We are going to the emerging markets because they are growth markets. The development of the middle class is real, and it is a turning point for these markets.”
About the Global Limited Partners Survey:
The findings of this study are based on data collected from 106 LPs headquartered in 28 countries and globally representative of the diversity of institutions investing in the asset class, including public and corporate pension funds, insurance companies, banks, asset managers, endowments and sovereign wealth funds. Surveyed LPs collectively represent PE assets under management of just under US$400 billion. The findings represented generally reflect the views of LPs experienced in investing in the asset class, e.g., five years or more and in at least six EM PE funds.
The Emerging Markets Private Equity Association (EMPEA) is an independent, global membership association whose mission is to catalyze the development of private equity and venture capital industries in emerging markets. EMPEA’s 300 members share the belief that private equity can provide superior returns to investors, while creating significant value for companies, economies and communities in emerging economies. Our members, representing nearly 60 countries and more than US$1 trillion in assets under management, include the leading institutional investors and private equity and venture capital fund managers across developing and developed markets. EMPEA leverages an unparalleled global industry network to deliver authoritative intelligence, promote best practices, and provide unique networking opportunities, giving our members a competitive edge for raising funds, making good investments and managing exits to achieve superior returns.