Interest in emerging market private equity opportunities continued unabated in 2007, with 204 funds collectively raising USD59.2bn in fresh capital, a 78 per cent increase over the USD33.2
Interest in emerging market private equity opportunities continued unabated in 2007, with 204 funds collectively raising USD59.2bn in fresh capital, a 78 per cent increase over the USD33.2bn raised in 2006. According to the Emerging Markets Private Equity Association, fundraising dedicated to emerging markets over the past three years has totalled more than USD118bn, compared with just USD13bn from 2002 to 2004.
‘Last year was one of significant milestones for the asset class,’ says Empea president Sarah Alexander. ‘What was once a primarily development finance-backed experiment is now, in many emerging markets, a credible, commercial asset class attracting sizable investments from well-known institutional investors, including public pension funds.’
Fund sizes in 2007 shattered records, Empea reports. Notable closes included a USD4bn oversubscribed pan-Asia fund, a USD2.1bn fund for central Europe, and three USD1bn-plus country-dedicated funds for Brazil, China, and India.
Nineteen funds had raised USD1bn or more in 2007, compared with just four the previous year. Average fund sizes also increased sharply, with closed funds averaging USD426m last year compared with USD272m in 2006. Growth also expanded to sector-specific funds, with notable increases in natural resources, technology, infrastructure and agriculture.
Alexander says: ‘2007 seemed to be the year of infrastructure in some markets. In India, investments in infrastructure will be vital to ensure that the pace of economic growth can be sustained. For investments in the industrial and agricultural sectors to bear fruit, India needs better roads, better ports, and more reliable energy supplies, and private equity funds are gearing up to finance these projects.’
Emerging Asia remained the premier destination for capital commitments, with USD28.7bn in 2007, roughly 49 per cent of total fresh capital raised and an increase of 48 per cent over the USD19.4bn raised in 2006.
However, the growth in Asian fundraising was less dramatic than elsewhere. Central and eastern Europe saw totals surge by more than 300 per cent thanks to two record-breaking multi-billion-dollar closes, while Latin America fundraising grew by 66 per cent and capital raised for investment in the Middle East surged by 71 per cent.
‘The incredibly strong year-on-year growth we continue to see in fundraising indicates that institutional investors have a long-term view that favourable risk-adjusted returns will persist across all these regions,’ Alexander says.
‘This expansion is the product of investors seeking to capitalise on growth markets and to diversify their investment base. This is yet another signal that the asset class is coming of age.’
The impact of global credit market tightening in 2007 ignited by troubles in the American sub-prime mortgage market, has yet to be seen in the emerging market private equity arena, Empea reports.
Says Alexander: ‘The markets need time to adjust to this new environment, but it’s unlikely we’ll see the same level of difficulties in getting deals done relative to the US and western Europe, primarily because use of significant leverage is less prevalent in private equity deals in the emerging markets, and when debt is used, it can often be provided by local banks that aren’t affected by the credit squeeze.’
