Emerging markets attracting interest

Survey: Private-equity investors expect to move into funds for first time

Apr 19, 2009 @ 12:01 am

By Arleen Jacobius

A little more than one-third of private-equity investors without exposure to emerging-markets funds plan to invest in such funds within the next two years, according to a new survey conducted by Coller Capital and the Emerging Markets Private Equity Association.

Nearly half, or 49%, of emerging-markets private-equity investors said they expected to commit additional capital to emerging markets within two years. Some 37% of limited partners with emerging-markets investments said they expected that their 2009 commitments would be about the same as last year, with 11% significantly higher and 14% slightly higher than in 2008.

The remaining 38% said they expected to reduce new commitments for two key reasons: Nearly two-thirds cited cash constraints, while 37% said they were overallocated to private equity.

Emerging-markets private-equity investors expect higher returns from their emerging-market portfolios than from their global investments, the survey found.

Some 77% of limited partners said that they expected net annual returns of more than 16% from their emerging-markets private-equity funds over the next three to five years, compared with 43% of limited partners who said that they anticipated more than 16% returns for their entire private-equity portfolios, the survey showed.

"Within their [investors'] private-equity portfolios, they expect that emerging markets will return better than developed markets," said Sarah Alexander, president of the EMPEA in Washington.

More than half of limited partners, or 57%, said that their 2006 and 2007 emerging-markets private-equity funds would be less affected by the global downturn than developed-markets funds of similar vintages because they had much lower levels of leverage.

"The funds did not really use leverage ... There were very few leveraged buyouts in the emerging markets — 70% to 80% are growth capital," Ms. Alexander said.

"When private-equity investors ask themselves if they want to stay allocated in private equity and, if so, where to put their money to work, emerging markets seems to be a good proposition," said Erwin Roex, a partner at Coller Capital of London.

The survey of 156 global institutional investors was conducted in January and February.

Arleen Jacobius is a reporter for sister publicationPensions & Investments.

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