EM PE Review – Volume VIII, Issue 2

In this issue


Anti-Corruption: Guidance for EM PE Practitioners

Fundraising Do’s and Don’ts: Lessons from EMPEA’s Inaugural Fundraising Masterclass

Highlights from the 14th Annual Global Private Equity Conference

Guest Commentary: Emerging Market Secondaries Come of Age: An Analysis by Pomona Capital

Inside Perspectives: An Interview with African Capital Alliance’s Okechukwu Enelamah

Viewpoint from EMPEA president and ceo sarah alexander

Amidst a global economic slowdown, emerging markets continue to offer investors the greatest growth opportunities. Yet investors are faced with difficult choices: while they seek to diversify away from developed-market assets due to higher risks associated with debt and regulation, risk and regulation continue to be the primary inhibitors to greater investment in emerging markets. It appears investors are at a standstill.

We believe this “new normal” presents enormous opportunity for private equity investors in emerging markets, a sentiment shared by the record-setting 875 delegates at this year’s Global Private Equity Conference. However, we’re not Pollyannaish in our beliefs; despite our outlook, we remain sensitive to investors’ legitimate concerns regarding regulation and risk, and we’ve undertaken two initiatives to tackle them head-on.

The first is our recent release of the EMPEA Legal & Regulatory Guidelines. The Guidelines, an effort spearheaded by our Legal & Regulatory Council, are a global resource that identifies the key elements of legal and tax regimes that could foster greater private equity investment. I encourage readers to visit our new website, www.EMPEA.org, to learn more about them as a tool for your own discussions with regulators.

In addition, EMPEA’s Legal & Regulatory Council has been developing tools to help fund managers reduce operating risks. This issue features guidance from leading law firms on corruption issues, laying out a number of real-world scenarios GPs are likely to encounter through the lifecycle of their funds.

For many smaller GPs, their largest challenge is getting their fund’s lifecycle started. Our preliminary Q2 statistics show that fund managers raised under US$8 billion between April and June. Two funds—Capital International Private Equity Funds (CIPEF) VI and Kohlberg Kravis Roberts & Co Asia Fund II—account for US$6 billion, or 75%, of the total funds raised. The data demonstrate a continued bifurcation in the market: record-breaking closes for very large funds, and a slowing fundraising environment for smaller GPs.

Given the deal flow and opportunity set within lower market segments, we believe smaller and mid-size funds merit greater attention. So this year we launched a new Fundraising Masterclass to provide smaller fund managers with tools to help them secure LP commitments, and to free up time to focus on their core competency: sourcing and executing deals. We’ve summarized here the key recommendations from our Masterclass faculty.

The development of the secondaries market could help unlock capital for smaller GPs. In this issue, John Stephens, Managing Director of Pomona Capital, discusses the emergence and importance of secondaries as a vehicle for providing LPs greater transparency into PE fund managers, a “margin of safety” in pricing and a means of attaining liquidity with their portfolios. EMPEA Board Member Okechukwu Enelamah touches on the liquidity of private equity portfolios in an interview that I encourage all members to read.

As the summer heats up and turmoil in sovereign debt and public equity markets ratchets higher, we will continue to push forward on the issues of risk and regulation across the emerging markets. There will be a lot to discuss when we next meet in London the week of 22 October for Capital Impact: Private Equity in Emerging Markets 2012 and our fourth annual Private Equity in Africa leadership summit, as well as another Fundraising Masterclass. I look forward to seeing you there.