Emerging Markets Private Equity Fundraising Steady, Dealmaking Cools in Challenging Environment

  • Emerging market fundraising on track to match 2011 levels, maintaining 15% share of global total
  • Number of deals flat as uptick in transactions ex-Asia offsets declines in China, India
  • Total invested capital falls 34% and average deal sizes drop 22% due to fewer US$100 million-plus deals
  • China RMB funds stall while multi-region and Emerging European funds surge

14 August 2012, Washington, D.C. — Fundraising by private equity funds focused on the emerging markets held steady in the first two quarters and maintained a 15% share of the global fundraising total. With US$17.2 billion raised in the first six months of 2012, or nearly half of the US$38.5 billion raised in all of 2011, emerging market funds are on track to match 2011 levels.

During the same period, investment activity cooled slightly, with decreases in the number of deals in China and India offset by an uptick in deals in the Middle East, Africa, Russia and Brazil. Total invested capital fell 34%, and average investment sizes dropped 22% due to a one-third decrease in the number of US$100 million-plus transactions versus the same period in 2011. According to the Emerging Markets Private Equity Association (EMPEA), 411 emerging market private equity investments totaling $9.8 billion in disclosed value were completed in the first six months of the year, compared with US$14.9 billion invested across 460 deals in the same period in 2011.

“In an environment that’s challenging for all investors globally, the belief that most of global growth will come from emerging markets continues to drive a significant share of global private equity capital to these economies,” said Sarah Alexander, founding President and CEO of EMPEA. “However, private equity firms grappling with legal and regulatory uncertainty and anticipated currency depreciation are slowing the pace of investments or alternatively looking to listed markets, which may offer readier opportunities for exit,” she continued. EMPEA’s data reveals that five of the fifteen largest emerging market private equity deals in the first six months of 2012 were PIPE deals, or private investment in public equities. PIPE deals represented three of the fifteen largest emerging market PE deals in all of 2011.

Fundraising Holding Steady, Led by Mature Large Funds

The resilience in emerging markets private equity fundraising through mid-year was attributable to a select few individual closes including the largest pan-emerging markets fund raised to date, Capital International’s US$3 billion sixth fund and two of the largest Turkey funds ever raised.  Ten of the 60 funds holding closes through mid-year accounted for 75% of capital raised, compared with the ten largest funds accounting for 37% of capital raised in all of 2011 and 35% raised in 2010.

“For institutional investors seeking exposure to high growth markets but lacking the resources to source and manage multiple fund relationships, mature platforms with large funds present an efficient option.  However, this concentration of capital obscures the abundance of opportunities in emerging economies that lie within the middle market, often better accessed via smaller or specialized vehicles,” observed Ms. Alexander.

Fundraising for China fell sharply, with only 12 funds raising US$4 billion through mid-year compared to US$11 billion the same period a year prior and US$17 billion in all of 2011. China’s share represented 23% of total capital raised January through June, versus 53% of total capital raised in the first half of 2011.  Hony Capital’s fifth and largest USD fund to date, which closed at US$2.4 billion in January, was not enough to offset a sharp decline in RMB-denominated funds. “In light of growing investor awareness of opportunities elsewhere in Emerging Asia, and the challenging exit and regulatory environment in China, we anticipate a potential shift away from China-only strategies in favor of a more regionalized approach, consistent with the pattern among many Asian funds being raised today,” noted Ms. Alexander.

Even as China fundraising slowed, funds focused on Emerging Europe surged through mid-year, drawing 15% of total capital led by Turkey and Poland. Six Emerging European funds raised US$2.6 billion, the most raised for the region since 2008

Dealmaking Cools at High End but Thrives in Middle Markets and Beyond Asia

While investment pace has slowed in developed markets private equity and emerging markets M&A, private equity dealmaking in emerging markets remained strong in the first two quarters, with 411 deals versus 460 transactions in the same period the year before.

Deal activity slowed at the upper end of the market, where the number of deals over US$100 million fell by one-third, pushing total investment down 34% and average deal sizes down 22% versus the same period in 2011.

Whereas China and India saw deal counts fall by 8% and 25%, respectively, compared to the first half of 2011, markets beyond Asia saw transaction volumes rise 4% with notable upticks in Brazil, MENA and Sub-Saharan Africa, where the number of deals rose 53%, 42% and 27%, respectively.

Emerging Asian markets continued to account for the majority of investment, representing nearly two-thirds of both total invested capital and number of deals. With 124 deals, China alone accounted for 40% of total investment and 30% of transactions.  Latin American markets including Brazil, and Emerging European markets including Turkey drew 12% and 8% of deals, respectively.  Sub-Saharan Africa drew 7% of deals, while Russia accounted for 5% of transactions and the MENA markets represented 4%.


Note to editors:
In 2011, 148 private equity and venture capital funds raised US$38.5 billion, representing 15% of the global total and a 64% increase over 2010. During that same period 876 private equity and venture capital deals valued at US$26.9 billion were completed in the emerging markets, roughly even with the US$28.8 billion invested across 856 deals in 2010.



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.  EMPEA’s members represent nearly 60 countries and over US$1 trillion in assets under management.