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LPs Prefer Emerging Markets India, China and CE Europe: Survey

21 January, 2009

India, China and Central & Eastern Europe have firmly established themselves as the most attractive regions for private equity, said a survey of limited partners conducted by the Almeida Capital, a UK based placement agent for private equity.

The poll was conducted on more than 150 institutional investors including pension funds, insurance companies, endowments and charities. The results in a way corraborate what is going on in the market. Several fund of funds have raised capital in the recent past exclusively for Asia pacific region.

Recently, LGT Capital Partners announced the final close of Crown Asia-Pacific Private Equity plc with total subscriptions of $373 million. IL&FS Investment Managers Ltd  announced the first close of Standard Chartered IL&FS Asia Infrastructure Growth Fund at $568 million.

HarbourVest Partners, a global private equity fund of funds, announced its plans of raising a $3 billion fund sixth fund and has a sub-fund for various regions. The corpus for its Asia sub-fund is $500 million. Asia Alternatives, an Asia focused private equity FoFs, achieved the final close of its second fund at $950 million last year.

Private equity’s interest in Asia is also evident from the way funds are restructuring  their emerging markets teams and making new appointments for the Asia Pacific region. Recently, US buyout giant moved its Moscow office chief Stephen Peel to Hong Kong as  new Asia head. Also, KPMG moved its China partner, Honson To as regional head of private equity for the Asia-Pacific region. UK private equity firm 3i Group also elevated Anil Ahuja as the head of Asia practice. 

According to Prequin, a London based research firm that tracks private equity fund raising globally, there are about 117 pan-Asia private equity funds – who have India as one of its geographies – on road currently targeting to raise an aggregate capital of $59.2 billion in 2009.

The survey, however, found that the interest in other emerging private equity markets has waned significantly as investors perceive other parts of South-East Asia, Japan and Australia as being exposed to significant economic downturns. Japan’s second-largest brokerage house Daiwa Securities’ had to drop its plans for a $5 billion Asian private equity fund.

2009 can bring in bad news for the mega-funds, cautioned the survey, but potentially good news for private equity managers who invest in special situations, lower or middle markets or in emerging markets, and create value in their portfolio companies rather than rely on leverage.

The survey showed that institutional investors believe the large leveraged buy-out model is not viable. North American institutions are the most negative on buy-out funds with no investors planning to increase allocation and 62 per cent planning to decrease in 2009.

The survey has also pointed out that though overall allocations to private equity funds is set to fall in 2009, 78% of respondents will maintain or increase their allocations to other categories of private equity – funds investing in emerging markets, mezzanine funds, special situations fund.

The secondary private equity market, in which investors buy and sell participations in private equity funds or in vehicles comprising portfolios of stakes in private companies, also saw a lot of

interest from investors. About 70% of the LPs feel that 2009 will be a good time to buy secondary assets.

Special situations emerged as the most attractive fund category to invest in this year, according to the survey. Mezzanine funds and small and medium buyouts remain the most attractive areas for the institutional investors.


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LPs Prefer Emerging Markets India, China and CE Europe: Survey

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