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Canada Private Equity Players Eye Emerging Markets

17 June, 2010

Canadian investors are increasingly looking for deals in emerging markets as the global economy recovers, following deep-pocketed pension funds into Asia in particular, even as valuation concerns linger.

In fact, evidence of the flow of Canadian capital into emerging markets is everywhere, from the volume of business passengers flying from Toronto to Asian capitals to the resurgent encouragement by government to invest overseas.

“The international connectivity for Canadian emerging and growth companies to emerging markets, including the product connectivity as well as capital flows, has increased dramatically over the past two or three years,” Greg Smith, the president of the Canadian Venture Capital and Private Equity Association said on Wednesday.

Emerging markets will make up an increasing percentage of investments by Canadians and other global players in the years to come, experts say, with private equity players eager to establish on-the-ground business intelligence now to position themselves for the deals of the future.

Just weeks ago, Research In Motion (RIM.TO), one of Canada’s largest companies and the inventor of the ubiquitous BlackBerry smartphone, helped launch a technology fund in China to invest in new mobile-phone services and applications.

The aptly named BlackBerry Partners Fund, a $150 million venture capital fund backed by RIM, was a joint venture with China Broadband Capital Partners, and was described at its launch as just the first stop on an expansion strategy.

EMERGING MARKET, NECESSARY MARKET

“Not only are emerging markets important now, but 20 years from now and the percentage they will make up of capital markets will be enormous,” David Denison, the chief executive of the Canada Pension Plan Investment Board (CPPIB), told an international conference in Toronto last week.

CPPIB, one of the country’s top pension fund administrators with C$127 billion in assets under management, announced plans in April to commit to its first India focused fund.

CPPIB, likely to be one of the world’s top investors in third party funds this year, will commit at least $100 million to the so-called Multiples Alternate Asset Management fund.

Export Development Canada, a self-financed government corporation, is also plowing ahead eagerly in emerging markets.

In India, investment is focused on infrastructure and in small and medium-sized companies poised for rapid growth. It is also invested in Mexico, Brazil, the Caribbean, China, Turkey and Israel, and is looking at Africa.

“I think it’s a fact that more and more investments are coming into the emerging markets and I think there’s several challenges,” Anne Kvam, global head of ownership strategies at Norges Bank Investment Management, which is responsible for the operational management of the Norway government pension fund, one of the world’s largest investment pools.

“One key problem is the transparency, getting access to good information and good data as an investor. Where do you get the data? Where do you get the information?” she said during a recent visit to Toronto.

Recent bumps in financial markets and credit strife in several European countries are also concerns for private equity investors.

That is especially true in lesser known markets because investors have difficulty predicting cashflows three or four years out, making it hard to value deals.

“The problem is you can’t diversify away systemic risk,” said Denison. “When valuation is a concern is when markets are not functioning well.”


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Canada Private Equity Players Eye Emerging Markets

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