Emerging markets attracting interest

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.

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.