EM PE Review – Volume VIII, Issue 1

Industry Data

EMPEA Industry Statistics

EM PE Performance

Notable Exits & IPOs

Viewpoint from EMPEA president and CEO Sarah Alexander

Fundraising for emerging markets private equity grew by 64% last year, reaching a 3-year high of US$38.5 billion and accounting for 15% of the global fundraising pool in 2011, up from 11% in 2010. The macro story of EMPEA’s statistics suggests that investors are clearly still seeking to expand their PE exposure in emerging markets and are shifting capital from developed to developing countries to generate returns.

At the same time, however, the underlying data also show that LPs are concentrating their funding on just a few countries and large funds. Funds dedicated to China and Brazil alone captured 61% of the total emerging market funds raised, with China drawing a record 43% and more than doubling the funding raised in 2010. RMB funds continue to make up more than 50% of the funds raised for China.

While the Chinese market continues to dominate LPs’ focus, it remains difficult to assess from afar, with multiple strategies claiming the PE mantle and estimates of active RMB PE funds ranging from dozens to thousands. In this edition of the EMPEA EM PE Review, we share with you how we analyze the market, particularly RMB funds, distinguishing various types of private equity activity and the differences we see between institutional quality and non-institutional quality funds. Our goal is to help market participants gain a better understanding of the real investible universe of fund managers operating in China, and ultimately support the ongoing development of best practices that will institutionalize the asset class in the country.

In addition to country focus, LPs are seeking to commit larger chunks of capital, driving a bias in 2011 toward large funds. In fact, 28%—the highest percentage ever— of funds across emerging markets with final closes in 2011 were greater than US$500 million. In Brazil, five funds, each of which raised US$1 billion or more, accounted for 95% of all capital raised for the market last year.

As a result of such concentration in fundraising, LPs may be missing a wealth of opportunities that target investments in the lower and middle market space. In this issue, Jie Gong and Neil Harper of global fund of funds Morgan Stanley Alternative Investment Partners discuss how they look for the less prominent—but as promising— segments of the emerging markets. Separately, the team at PineBridge Investments articulates how a hedge fund approach may provide a complement to private equity to enhance exposure and minimize risk in emerging markets.

We look forward to exploring these and other themes in greater detail at the IFC/ EMPEA 14th Annual Global Private Equity Conference in Washington, DC on 15–16 May. This year will also see a return of the popular Institutional Investors-Only Day on 14 May, and, for GPs, we are launching our first EM PE Fundraising Masterclass on 17 May devoted to sharing fundraising perspectives and industry best practices. I hope you will be able to join us for what will surely be an exciting week for the industry.