The recovery in emerging market private equity activity has outpaced the global industry, led by a significant 30% increase in capital invested in 2010 versus the prior year. According to the Emerging Markets Private Equity Association (EMPEA), 856 private equity and venture capital deals valued at USD28.8 billion were completed in 2010 across the emerging markets, driven by an increase in deal volume (27%) coupled with a slight uptick in median deal sizes (12%).
While fundraising remained relatively flat at USD23.5 billion, versus USD22.6 billion in 2009, emerging markets’ share of global fundraising hit a new peak at 11%, as funds raised globally dropped to their lowest level since 2004.* For the first time since 2006, invested capital trumped total funds raised, suggesting that an improving investment environment is finally absorbing accumulating dry powder and that global pools of capital are zeroing in on the opportunities in emerging markets.
EMPEA’s CEO, Sarah Alexander says: “We expect to see an increase in private equity fundraising across the emerging markets as investors not only seek exposure to high-growth markets, but also increasingly develop a more nuanced and informed perspective on emerging market risk relative to developed markets. On the deal side, investments focused on growth and expansion capital will continue to dominate the emerging markets landscape and Brazil in particular is living up to last year’s expectations as a compelling investment story.”
Latin America, led by Brazil, is benefiting from a growing and increasingly diversified pool of capital from LPs looking to expand their emerging markets exposure. Fundraising for Latin America and the Caribbean hit a record USD5.6 billion in 2010, including two of the three largest emerging market funds to close last year. In 2010, capital invested in Latin America jumped 405% to USD6.6 billion, driven largely by greater participation from international players investing out of global capital pools. Nine of the 10 largest deals in Latin America and the five largest investments in Brazil were made by global funds as opposed to vehicles dedicated to investment in the region.
Alexander went on to add, “I’m not surprised at the surging interest in Latin America, and particularly Brazil at this moment. While there was interest in 2006-2008, Latin America was somewhat of an afterthought for many LPs and funds. Now, investors recognise the favourable political and economic fundamentals that will continue to drive opportunities in the long run.”
Investor appetite for Latin America has not come at the expense of Emerging Asia, which maintains its status as the most favoured emerging market investment destination, drawing 64% of the total dollars invested in emerging markets in 2010. Investments in Emerging Asia grew 32% to USD18.3 billion in 2010. While still representing the majority of emerging markets fundraising with a 61% share, Emerging Asia saw a drop in funds raised from USD15.9 billion to USD14.2 billion between 2009 and 2010.
Alexander notes: “While China and India will continue to anchor many investors’ portfolios, perhaps more than at any other time in recent history LPs are ready to entertain strategies that include markets previously seen as too risky or shallow, such as Latin America, Sub-Saharan Africa or Southeast Asia.”
