India, China Capture Lion's Share of Total Emerging Market PE Investment

(August 25, 2011) — Private equity investment in emerging markets is returning to pre-crisis levels, according to research by the Emerging Markets Private Equity Association (EMPEA).

In total, India and China — the two Asian giants — attracted 68% of private equity capital invested in emerging markets in the first six months of 2011, with $5.8 billion going into China and $3.8 billion into India.

“Western institutions are continuing to seek greater exposure to the world’s fastest-growing markets, and institutions in the emerging markets themselves are significantly ramping up their investment in the asset class,” said Sarah Alexander, President and CEO of EMPEA, in a statement.

In terms of fundraising, EMPEA’s study revealed that fundraising activity in the first six months of 2011 reached almost full year 2010 levels, estimating that fundraising for the full year could reach $40 billion or more, which would exceed the 2006 total.

EMPEA, which manages a global proprietary database of private equity activity across the emerging markets, asserted that emerging markets’ gains in fundraising through June 2011 were fueled by continued increases in interest from developed markets as well as greater participation from investors in the emerging markets themselves.

The study showed that in the first half of 2011, 89 funds raised $22.6 billion, compared to $23.5 billion for the entirety of 2010. Funds completed 431 deals with a combined value of $14.1 billion over the same period. This compares with 434 deals totaling $12.8 billion in 2010. EMPEA noted that the recovery has been fueled by changing asset allocations of Western institutional investors — who are increasingly receptive to alternatives and emerging markets — along with greater participation by emerging market institutions.

Alexander added: “Institutions such as pension funds realize they have to increase their exposure to alternative investments to yield the returns needed to meet their escalating liabilities over the next 5-10 years. Given the drubbing to their equities and fixed-income portfolios this summer, we anticipate even greater interest from institutional investors in private equity in emerging markets.”

In July, a previous research report by EMPEA showed that greater interest in Latin America among private equity and venture capital funds is fueling investment potential in the region.

According to the statistics released by the firm, 2010 saw private equity activity in the emerging markets rebound from a slower 2009. The study showed that pension funds in Latin America have had a longer history of private equity investment than many emerging markets, with Brazil, for example, leading the charge on corporate pension fund participation in private equity. The report concluded that Latin America has become one of the most favored regions for private equity investment and fundraising. Investment in the region surged from $1.3 billion in 2009 to $6.6 billion in 2010. “Developments in Latin America could potentially be a harbinger of things to come in other markets, such as Asia and Africa, which we will examine through future EMPEA research initiatives,” it said.