Emerging Markets Private Equity Funds Grow Dramatically, Demand for EM Expertise Soars
Private Equity funds investing in emerging markets raised $59 billion in fresh capital last year a staggering 78% increase over the $33 billion raised in 2006, according to the Emerging Markets Private Equity Association (EMPEA). The EMPEA says fund sizes in 2007shattered records and hit historical highs across multiple regions Fund growth also expanded to sector-specific funds, led by natural resources, technology, infrastructure, and agriculture. Despite the tightening of the global credit markets, Sarah Alexander, President of EMPEA, says, “The incredibly strong year-over-year growth we continue to see in fundraising indicates that institutional investors have a long-term view that favorable risk-adjusted returns will persist, across all these regions.”
Executive recruiting firm, A.E. Feldman, says that emerging markets remain important in the money management business. Firms want people who can understand companies in these developing regions on a ground level basis. The firm sees rising demand for investment banking, private equity and venture capital professionals with interest and expertise in emerging markets. The increase in overseas investment is also creating attorney jobs for candidates with structured finance and capital markets experience.
The impact of the tightening of the global credit markets in 2007 has yet to have an impact on private equity deals in emerging markets. According to EMPEA’s Alexander , “It’s unlikely we’ll see the same level of difficulties in getting deals done relative to the US and Western Europe, primarily because use of significant leverage is less prevalent in private equity deals in the emerging markets, and, when debt is used, it can often be provided by local banks that aren’t affected by the credit squeeze.”
Private equity funds investing in emerging markets broke records in 2007, with 19 funds raising a minimum of $1 billion, according to the EMPEA. The EMPEA also finds that fundraising dedicated to the emerging markets over the last three years has totaled more than $118 billion a sharp contrast to the $13 billion raised in the previous three years. The group’s President, Sarah Alexander, says, “What was once a primarily development finance-backed experiment is now, in many emerging markets, a credible, commercial asset class attracting sizable investments from well-known institutional investors, including public pension funds.”
Emerging Asian markets attracted the largest amount of private equity capital. Last year alone, they raised $28.7 billion - nearly half of the total new capital raised. That’s also a significant jump from the $19.4 billion raised in 2006.
Money raised by funds dedicated to Central and Eastern Europe surged by more than 300% in 2007 thanks to two record-breaking multi-billion dollar closes. More than $14 billion was raised for the region last year compared with $3.2 billion in 2006.
Meanwhile, funds dedicated to Latin America and the Caribbean raised $4.4 billion in 2007 compared with $2.6 billion a year ago. Funds devoted to the Middle East and North Africa also raised $5 billion in new capital a jump of $2.1 billion in 2006.
Looking ahead, U.K. government-backed emerging markets private equity fund of funds investor CDC Group recently committed $750 million to a new emerging markets infrastructure fund to be managed by Actis Capital LLP., according to a Private Equity Analyst report. The Actis fund will invest predominantly in the power sector, including in renewable energy projects, and will seek selective investments in transport, telecoms and infrastructure.
