Emerging Markets Private Equity Expected to See More Investments — EMPEA Report

Pensions & Investments

BY HAZEL BRADFORD · · UPDATED

Despite year-over-year declines in emerging markets private equity fundraising and investment, most respondents to EMPEA’s 2017 annual global limited partners survey released Tuesday do not expect the dollar level of new commitments to drop over the next two years.

The survey was released at the 19th annual global private equity conference sponsored by the Emerging Markets Private Equity Association and International Finance Corp. in Washington.

The survey, featuring 127 representatives from 106 limited partners, represents more than $6 trillion of global assets.

For the 45% of investors planning to increase their commitments, 61% cited exposure to high-growth economies, and 52% named greater geographic diversification as the reason. Thirty-eight percent anticipate maintaining their level of commitments, while 17% plan to decrease.

Respondents ranked India as the most attractive emerging market over the next 12 months, followed by Southeast Asia and Latin America, excluding Brazil. More than half of the limited partners expect to form fewer than five new emerging markets private equity manager relationships in the next three years.

The survey also found that 52% of respondents plan to increase co-investment activities with emerging markets funds over the next two years, with 43% seeking direct investment opportunities and 35% looking to increase direct exposure in the future.

“Limited partners are leading the changes in global private equity,” said Robert van Zwieten, EMPEA president and CEO, in an interview, and his group sees more compression and consolidation ahead.

With currency risk and political risk becoming ubiquitous, including in the U.S., “we should look at the world from the prism of risk, and not ‘emerging markets’ or ‘developing markets.’ I have long felt that the U.S. is a giant emerging market,” Mr. van Zwieten said.

EMPEA also released a brief on secondary funds at the Washington conference, “Alternative Paths to Liquidity,” showing that distributions from emerging markets private equity and venture capital funds have lagged behind their developed market peers, and the number of disclosed sponsor-to-sponsor sales has increased across all geographies.