Research

EMPEA’s 8th Annual Global Limited Partners Survey collected the views of 106 LPs from 28 countries around the world to better understand their changing attitudes toward private equity investing in emerging markets. This study provides EMPEA Members and the broader industry with a greater understanding of how LPs view the asset class, how their attitudes have changed over time, what their plans are for investment and what factors will shape the future of private equity investment in emerging markets.

Key findings from the 2012 Survey include:

• Three-quarters of LPs expect their commitments to emerging markets to increase over the next two years. By contrast, only 26% of LPs anticipate they will expand their investments in developed markets in the same time period. This differential in planned commitments is consistent with overall patterns in global fundraising: in 2011, emerging markets captured 15% of total PE capital raised globally, from only 4% of the global total in 2004.
• More than half of LPs (57%) expect that emerging markets will account for 16% or more of their total PE allocation in two years’ time, on par with the 58% having similar expectations in the 2011 Survey.
• The shift in PE allocations towards emerging markets reflects persistent LP optimism about emerging markets’ ability to outperform developed markets. Nearly three-quarters of LPs (72%) expect 2011-vintage EM PE funds to deliver net returns of at least 16%, compared with only 26% of LPs believing the same of developed market PE funds.
• China and Southeast Asia funds are predicted to generate the highest net returns over the next 3–5 years, followed by Latin America funds.
• Latin America (ex. Brazil) has edged out Brazil as the region viewed as most attractive for dealmaking, with Brazil, China and Southeast Asia close behind. India continued its slide, falling to sixth place, while Central and Eastern Europe, once viewed as among the most attractive markets for PE, slipped into last place.
• LPs are increasing their focus on less-penetrated markets, with Latin America (ex. Brazil), Southeast Asia, Turkey and Sub-Saharan Africa all poised to see increased commitments. However, for the fourth year, Brazil stands to see the largest influx of new investors.
• Fund manager instability is the single greatest concern for LPs considering an investment in an EM PE fund, followed by worries about portfolio company management talent and corruption issues—all dwarfing concerns about macro issues such as currency or inflation risk.
• While issues at the fund manager or investee level are most worrying to LPs generally, concerns about macro-level challenges in select markets, particularly political and regulatory risk, pose the most significant deterrents to new entrants.
• More than half (53%) of LPs now expect GP commitments of more than 2% to a fund, with pension funds generally having the highest expectations for GP commitment percentages.
• Environmental, social and governance (ESG) considerations influence, at least in part, the manager selection decisions of two-thirds (65%) of LPs, but only 14% of LPs have investment mandates directly restricted by ESG considerations.