Private Equity investors ditch BRICS

11 Feb 2013

Emerging markets private equity fundraising continues to take a greater share of global private equity commitments, accounting for 20 percent of all capital raised in 2012, up from 12 percent in 2007 and 5 percent in 2003, according to the Emerging Markets Private Equity Association (EMPEA).

According to the EMPEA Industry Statistics report, 161 emerging market funds raised US$40.3 billion in 2012, up from the 148 funds that raised US$38.5 billion in 2011.

EMPEA is an independent, global membership association whose mission is to catalyse private equity and venture capital investment in emerging markets around the world.

Its members represent nearly 60 countries and over US$1 trillion in assets under management.

According to the EMPEA Industry Statistics report, 161 emerging market funds raised US$40.3 billion in 2012, up from the 148 funds that raised US$38.5 billion in 2011.

An increase in capital commitments flowing to pan-emerging markets and Asia-focused regional funds helped to offset reduced interest in China- and India-dedicated vehicles, which saw capital raised drop by 35 percent and 24 percent, respectively.

Private equity firms committed US$23.7 billion in disclosed value to emerging market companies through 819 deals compared with US$26.9 billion through 876 deals the year prior.

Capital invested in China fell 33 percent to US$7.1 billion, a five-year low, and capital invested in India fell 57 percent to US$2.7 billion, a seven-year low.

The report notes that Brazil and non-BRIC countries provided a strong counter to this trend as investment in Brazil increased 78 percent to US$4.4 billion and investment in non-BRIC countries increased 35 percent to US$8.3 billion.

EMPEA acting chief executive officer, Jennifer Choi, explains that with macroeconomic turbulence in Europe and political uncertainty in the United States dominating the news in 2012, emerging markets proved to be a resilient and reliable engine of continued growth, thus driving increased interest in the emerging markets private equity asset class.

“The pace of investment activity has slowed as businesses adjust to relative slowdowns in emerging market growth, as well as uncertain legal and regulatory regimes and challenging exit environments that continue to characterise a number of these markets.”

Southeast Asia had 13 funds raising US$1.4 billion for the region, the largest number of fund closes since 2006 and the most capital raised since 2007, suggesting that Southeast Asia will be a region to watch in 2013 as private equity firms deploy capital, according to the report.

The report shows that capital tends to concentrate around fewer and larger funds with the 10 largest funds reaching a final close in 2012 which accounted for 55 percent of the total capital raised by vehicles that closed last year.

In 2011, the 10 largest funds accounted for only 42 percent of the capital raised by closed vehicles.

US$1+ billion funds lead current fundraising cycle at expense of middle-market funds and 27 percent fewer funds held final closes between US$100 million and US$499 million in 2012 compared to 2011

“As limited partners struggle with the goal of increasing their allocations to emerging markets private equity while at the same time reducing overall costs, many have chosen to write larger checks to a smaller number of fund managers that have longer track records,” notes Choi.

Interestingly, the report also shows that investors have diversified away from BRICs, driving a number of non-BRIC deals up 16 percent with significant jumps in Chile, Malaysia, Morocco and United Arab Emirates.

A total 297 deals  were completed (US$8.3 billion) in non-BRIC markets last year up from 255 deals (US$6.1 billion) in 2011and the highest number to date, according to the report.

Funds completed 44 deals in Middle East & North Africa (MENA) in 2012, twice as many as completed in 2011 and the highest since 2008, driven by Morocco and United Arab Emirates, which saw their combined deal count jump from four to 20.

Southeast Asia had 13 funds raising US$1.4 billion for the region, the largest number of fund closes since 2006 and the most capital raised since 2007, suggesting that Southeast Asia will be a region to watch in 2013 as private equity firms deploy capital, according to the report.- Denise Mhlanga

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