Global limited partners (LPs) continue to expect their commitments to emerging markets private equity (EM PE) to increase, reflecting investor optimism about these markets’ ability to outperform developed markets, according to the latest EMPEA Global Limited Partners Survey.
Three-quarters (75%) of LPs expect their commitments to emerging markets to increase over the next two years. By contrast, only 26% of LPs anticipate they will expand their investments in developed markets over the same time period.
72% of LPs expect 2011-vintage EM PE funds to deliver net returns of at least 16%, compared with only 26% of LPs believing the same of developed market PE funds.
More than half of LPs (57%) expect that emerging markets will account for 16% or more of their total PE allocation in two years’ time, in contrast to 2004, when 61% of LPs had no allocation directed toward EM PE.
While Brazil still stands to see the largest influx of new investors, LPs are increasing their focus on the less-penetrated markets of Latin America, Southeast Asia, Sub-Saharan Africa and Turkey – all poised to see increased commitments. Particular markets of interest in these regions include:
Latin America beyond Brazil – Mexico, Colombia, Peru
Southeast Asia – Indonesia, Vietnam, Malaysia, Thailand
Sub-Saharan Africa – South Africa, Nigeria, Kenya, Ghana
Latin America beyond Brazil has edged out Brazil itself as the most attractive destination for dealmaking, with Brazil, China and Southeast Asia following close behind.
The predicted increases in the share of PE allocations aimed at emerging markets reflect the overall patterns seen in global PE fundraising data: in 2011, emerging markets captured 15% of the total PE capital raised, up from only 4% of the global total in 2004, according to EMPEA 2011 Year-End Fundraising Statistics.
“This year’s LP survey responses indicate that investors are continuing to shift capital from developed to developing countries in search of returns, which is consistent with EMPEA’s market data, and we expect this shift to continue for the foreseeable future,” says Sarah Alexander (pictured), President and CEO of EMPEA. “While China and Brazil are still very attractive, LPs are recognizing the opportunities in other less-penetrated markets, such as Indonesia, Nigeria and Colombia. Deployment constraints are preventing capital from flowing in fast enough to catch up with investor interest – in short, demand is outstripping supply.”
Brian Lim, Partner at Pantheon Ventures, says: “The picture has changed from over a year ago, sentiments have changed and the clouds are lifting. Investors in these markets are feeling more positive from the bottoms-up fundamentals in their portfolios because the health of the underlying companies have picked up.”
