19 April 2010

EMPEA/Coller Capital Emerging Markets Private Equity Survey – 2010

Investors to accelerate new commitments to emerging markets private equity (EM PE).

Performance expectations for EM PE significantly trump developed markets

China, Brazil and India viewed as the most attractive emerging markets for investment

Washington, D.C. – institutional investors increasingly believe that emerging markets are attractive for private equity investment, both on a standalone basis and relative to more developed markets, according to the latest EMPEA/Coller Capital Emerging Markets Private Equity Survey.

  • EM GPs are at least as well aligned with investors as developed market GPs, LPs say
  • Over half (57%) of limited partners (LPs) currently invested in EM PE plan to accelerate their new commitments over the next two years.
  • Emerging markets’ share of LPs’ PE investment will continue to grow, with total commitments to EM PE funds expected to rise from 6-10% today to 11-15% in two years’ time.
  • Over three-quarters (77%) of LPs expect annual net returns greater than 16% from their EM PE portfolio (compared with 29% of LPs who expect similar returns from their global PE portfolio).
  • Nearly three-quarters (70%) of LPs are either satisfied or very satisfied with the performance of their EM PE portfolio relative to that of their listed EM equities.
  • 61% of LPs view the alignment of their EM PE managers as just as strong as that of their developed market GPs, and an additional 23% of LPs see a greater alignment with their EM GPs.

“Investors are clearly drawn to markets with strong underlying growth rates, which trumps leverage in driving returns,” said Sarah Alexander, President and CEO of EMPEA. “LPs now see a mature group of fund managers with the skills and experience to capture the private equity opportunities fueled by growth and to minimize investor risk,” said Ms. Alexander.

Erwin Roex, Partner, Coller Capital said, “Investors are still increasing the proportion of their private equity commitments targeted at emerging markets. Why? Quite simply, because LPs expect emerging market funds to outperform developed market ones. And they regard emerging market GPs as at least as well aligned with their interests as developed market GPs.”

Only 11% of investors intend to slow their new commitments to EM PE, compared with 38% one year ago. Those who do cite cash constraints as the primary obstacle to maintaining commitments, followed by an over-allocation to private equity.

Beyond China, Brazil and India, which continue to dominate the rankings in terms of investment attractiveness, Emerging Asian markets (Vietnam, Indonesia and Thailand) are poised to see the greatest expansion in commitments from current investors. Ms. Alexander noted, “Sophisticated investors who have built their exposure in China and India are now looking for the next frontier and see great investment opportunities in less penetrated markets.”

“Brazil continues to lead the emerging markets in terms of attracting new investors, with almost one in five experienced emerging market investors planning to begin investing in the country,” said Roex.

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