Fundraising for emerging markets dedicated private equity funds slowed in 2009, but investment activity was comparatively strong.

Emerging markets captured nine per cent of global private equity fundraising and 26 per cent of global private equity investment, with deal activity by transaction volume down by only 11 per cent, according to research from the Emerging Markets Private Equity Association.
 
A total of 196 private equity funds focused on emerging markets raised USD22.6bn in 2009, a 66 per cent decline from the record-breaking USD66.5bn raised by 210 funds in 2008. The decline in new fund commitments was on par with an estimated 65 per cent decrease in fundraising in developed markets. 

Private equity investment in emerging markets totalled USD22.1bn across 674 deals, a 54 per cent fall in value but only an 11 per cent drop by number of transactions.
 
“The decline in emerging markets fundraising in 2009 was consistent with an environment that was exceedingly challenging for the entire private equity industry globally,” says Sarah Alexander (pictured), president and chief executive of EMPEA. “Investors who found themselves liquidity- and cash-constrained in 2009—even those investors most bullish on the emerging markets—have had to slow the pace of their commitments until cash flows from older fund commitments resume.”
 
Emerging markets captured 26 per cent of global private equity investment, versus only seven per cent in 2004, with USD22.1bn invested across 674 deals. Falling transaction sizes contributed to a 54 per cent drop in total investment value, while the number of PE transactions fell by only 11 per cent in 2009. This compares to a 79 per cent decrease in value and 50 per cent fewer deals in developed markets.

Emerging Asia markets captured 63 per cent of investments by value, and 70 per cent of emerging market private equity transactions by number in 2009, with China accounting for USD6.3bn and India capturing USD4bn. Robust activity in emerging Asia offset declines in other markets. Deal activity in emerging Asia by number of transactions fell by only five per cent; the number of transactions in emerging markets ex-emerging Asia was down 21 per cent, versus a drop by 50 per cent or more in developed private equity markets.
 
The slowdown in fundraising spanned all markets and regions, from a 50 per cent decline in funds raised for Latin America, to an 84 per cent decrease in new commitments to Middle East/North Africa-dedicated funds. Emerging Asia fund commitments fell 60 per cent, but their share of total capital raised grew from 60 per cent in 2008 to 71 per cent in 2009. 

China-dedicated funds accounted for USD6.6bn of the USD15.9bn raised for emerging Asia. China funds’ share of fundraising grew from 22 per cent in 2008 to 29 per cent of the emerging markets total in 2009. India-dedicated funds raised USD4bn in 2009, or 18 per cent of the total. As a group, funds focused on the BRIC markets accounted for USD11.5bn raised versus USD26.6bn in 2008.
 
 “2010 will still be a difficult year for fundraising. The majority of investors expect to grow their private equity exposure in emerging markets over time, but a significant portion of capital is locked up in older vintage buyout funds that have yet to produce significant distributions,” says Alexander. “In the near-term, domestic investors and development finance institutions will play a pivotal role, in particular as anchor investors for first-time funds.”