EMPEA Releases 2019 Global Limited Partners Survey

More than half of surveyed limited partners (LPs) plan to commit more capital to emerging market private equity (EM PE) in the next two years, the first time the rate has surpassed 50% since 2014.

This note of optimism highlights EMPEA’s new Global Limited Partners Survey, which was released one week before the global EM PE community gathers in Washington, DC on 14-15 May for the IFC’s 21st annual Global Private Equity Conference held in association with EMPEA. The 15th annual edition of the survey features the views of 104 LPs on the current conditions and outlook for EM PE.

“This year’s findings point to a continued recovery in investor sentiment toward emerging markets,” said Jeff Schlapinski, EMPEA’s Senior Director of Research. “Southeast Asia, China, and India have consistently been attractive to investors, but we are also witnessing markets like Brazil and Central & Eastern Europe coming back into favor. We also note that limited partners are looking for more information before investing, including details on managers’ internal operations; environment, social, and governance (ESG) practices; and diversity.”

Key findings from the 2019 Global Limited Partners Survey include:

  • LPs Look to Emerging Markets: Over half of respondents anticipate committing more capital to EM PE funds over the next two years, the first time that more than 50% have indicated they plan to increase commitments since 2014. The proportion of investors who plan to increase the EM share of their overall PE portfolios also reached its highest level in the past five years.
  • Due Diligence Rising in Importance: Nearly 44% of respondents have increased the amount of information requested from prospective GPs over the last two years, with a strong focus on operational practices, fund manager financials, and ESG considerations. Most LPs (63%) use their own proprietary questionnaire when conducting due diligence, presenting challenges for GPs faced with growing demands for information from prospective investors.
  • Southeast Asia Remains Top Destination: For the second straight year, Southeast Asia ranked as the most attractive market for investment, and the markets of Emerging Asia continue to hold the top three slots in EMPEA’s attractiveness ranking. Only Southeast Asia, China, and India recorded attractiveness scores of greater than 50 in the overall index, which tracks average LP sentiment toward emerging markets. Brazil was the biggest mover in the attractiveness ranking, climbing two spots to fourth above Africa (holding in fifth) and Latin America excluding Brazil (which fell to sixth). Among the least attractive markets—Russia/CIS, Turkey, and the Middle East—investors reported political risk to be the greatest deterrent to investing.
  • Past Performance Key: Unsurprisingly, 94% of respondents reported that the strength of a GPs’ past performance was important or very important when evaluating an EM PE fund manager. However, LPs are considering a broader array of factors than in the past. Over one-third of respondents reported that active management and reporting on ESG criteria were ‘very important’ when evaluating a new manager, up from 26% in 2013.
  • Technology Attractive: Over half of respondents indicated they are actively seeking investment opportunities in technology, with only 7% indicating no current or expected future interest in this investment area. Broadly speaking, e-commerce was viewed as the most promising technology area across all emerging markets.

About the Survey

In February and March 2019, EMPEA surveyed 118 representatives from 104 different institutions to gather their views on private equity in emerging markets.

  • Institutions participating in the survey include pension funds, family offices, development finance institutions (DFIs), funds of funds, private markets advisors, banks, asset managers, insurers, government agencies, endowments, foundations, and sovereign wealth funds.
  • These LPs are based in 37 different countries and collectively represent global PE assets under management (AUM) of approximately USD981 billion and total AUM of USD6.9 trillion.
  • More than 98% of institutions surveyed are currently invested in at least one EM PE fund, and 82% have been investing in EM PE funds for more than five years.
  • EM investments constitute 21% of the current overall PE portfolio of the average surveyed institution (excluding development finance institutions, EM-focused funds of funds, and others legally mandated to invest in emerging markets).