Emerging markets registered a decline in both new capital commitments and private equity investment activity during the first six months of 2009, but captured a larger share of global private equity activity than ever before.
A total of 84 emerging market funds raised USD16 billion through June, down 55% from a half-year high of USD36 billion raised by 132 funds in 2008 and a departure from the record-breaking USD66.5 billion raised in 2008, according to new research from the Emerging Markets Private Equity Association (EMPEA). Mid-year investment totals fell by 52% relative to the same period in 2008, with USD12.8 billion invested across 265 transactions compared to USD26.6 billion and 391 deals during the same period of 2008.
“The slowdown in emerging market fundraising and investment is consistent with, and generally less severe, than the decline in developed private equity markets. We are not seeing the sort of capital flight from emerging markets that followed past crises,” said Sarah Alexander, President of EMPEA. “In fact, emerging markets continue to account for a larger share of the global private equity market, consistent with their contribution to global GDP and GDP growth,” she added.
EMPEA estimates that the emerging markets share of global private equity fundraising has risen from 5% in 2004 to 20% as of June 2009, and from 7% to 24% of global private equity investment totals during the same period.
Emerging Asia continues to lead the asset class, raising USD11 billion in the first half of 2009, representing 69% of total new commitments during the period and a 61% decline from the USD29 billion raised relative to the previous year. China-dedicated funds saw a 67% decrease in capital raised at USD3.9 billion down from USD11.8 billion in the same period in 2008.
Vehicles focused on India registered a 32% decrease in capital raised year-over-year. China and India also continued to be the most active markets for investment, with 88 and 68 transactions, respectively, in the period ending June 2009, versus 103 and 89 deals, respectively, in the same period the previous year.
“EMPEA expects fundraising for emerging markets private equity to remain challenging for the next 18 months,” said Alexander. “Even though many Western investors consider themselves under-allocated to, and remain bullish on, emerging markets, their hands are tied for the near term due to internal cash constraints,” she continued.
By contrast, EMPEA expects the slowdown in investment activity to be comparatively transient. “The slowdown in deal activity is in large part a reflection of the conservatism of emerging market fund managers who have been waiting for markets to stabilize and valuations to sink lower. There are already signs of a pick-up in deal activity in the second half of the year,” said Alexander.