The current tide of global institutional investors money could be flowing out of emerging markets such as India, but recovery in emerging market private equity activity has outpaced global industry like most other sectors in 2010, according to Emerging Markets Private Equity Association (EMPEA).
EMPEA, an independent global industry association working in the field of private equity and venture capital investment in the emerging markets of Africa, Asia, Central/Eastern Europe and Russia/CIS, Latin America, and the Middle East, estimates that emerging markets PE/VC investments rose 30% over the previous year.
It estimates that 856 PE/VC deals valued at $28.8 billion were completed in 2010 across emerging markets, driven by a strong 27% increase in deal volume coupled with a 12% uptick in median deal size. EMPEA also says that while fundraising remained relatively flat at $23.5 billion, versus $22.6 billion in 2009, emerging markets’ share of global fundraising hit a new peak at 11%, as funds raised globally dropped to their lowest level since 2004(based on information compiled by alternate assets data provider Preqin).
According to EMPEA, for the first time in five years capital invested was more than total funds raised which shows an improving investment environment as accumulated dry powder is being absorbed.
Emerging Asia maintained its status as the most favoured emerging market investment destination, drawing almost two thirds of the total dollars invested in emerging markets last year. Investments in Emerging Asia grew 32% to $18.3 billion in 2010, according to EMPEA. While still representing the majority of emerging markets fundraising with a 61% share, Emerging Asia saw a drop in funds raised from $15.9 billion to $14.2 billion between 2009 and 2010, it said.
EMPEA’s CEO, Sarah Alexander said, “While China and India will continue to anchor many investors’ portfolios, perhaps more than at any other time in recent history LPs are ready to entertain strategies that include markets previously seen as too risky or shallow, such as Latin America, Sub-Saharan Africa or Southeast Asia.”
Latin American market is getting hot within emerging economies as LPs are looking at the region led by Brazil to expand their emerging markets exposure. Fundraising for Latin America and the Caribbean hit a record $5.6 billion in 2010, including two of the three largest emerging market funds to close last year.
Last year capital invested in Latin America jumped a little over five times to $6.6 billion, driven largely by greater participation from international players investing out of global capital pools. Nine of the 10 largest deals in Latin America and the five largest investments in Brazil were made by global funds as opposed to vehicles dedicated to investment in the region, according to EMPEA.
EMPEA’s Sarah Alexander said, “While there was interest in 2006-2008, Latin America was somewhat of an afterthought for many LPs and funds. Now, investors recognise the favorable political and economic fundamentals that will continue to drive opportunities in the long run.”
She added, “We expect to see an increase in private equity fundraising across the emerging markets as investors not only seek exposure to high-growth markets, but also increasingly develop a more nuanced and informed perspective on emerging market risk relative to developed markets. On the deal side, investments focused on growth and expansion capital will continue to dominate the emerging markets landscape, and Brazil in particular is living up to last year’s expectations as a compelling investment story.”