EMPEA Global Limited Partners Survey finds 67% of institutional investors view the risk profile of private equity in emerging markets as unchanged

30 April 2014, Washington, D.C. – Two-thirds of limited partners (“LPs”) investing in emerging markets private equity view the risk profile of emerging markets private equity (“EM PE”) as unchanged over the past year, according to EMPEA’s latest Global Limited Partners Survey, with the majority of respondents indicating that EM PE is no more risky today than it was a year ago.

“This finding suggests that long-term investors remain relatively unfazed by recent volatility affecting certain emerging markets, although they continue to identify currency risk and political risk as concerns for investing in the asset class,” said Robert van Zwieten, President and CEO of EMPEA.

For the second consecutive year, markets outside the BRICs were identified by LPs as the most attractive destinations for PE investment over the next 12 months, with Latin America (ex. Brazil) regaining the top spot after being displaced in 2013 by Sub-Saharan Africa, which ranked third this year behind Southeast Asia. According to the survey results, markets in Southeast Asia are poised to see the greatest influx of new investors over the next two years. Despite the growing attractiveness of this new tier of markets and a positive outlook on the potential returns, limited partners are most bullish on private equity funds focused on China for 2013-vintage vehicles with 61% of respondents expecting net returns of 16% or more.

Also of note in the results of the 10th Annual EMPEA Global Limited Partners Survey:

• A greater percentage (41%) of LPs this year plan to increase the percentage of their total PE allocation targeted at emerging markets over the next two years, versus 32% in 2013.
• A majority (54%) of LPs expect to increase the dollar value of new commitments to EM PE over the next two years, down slightly from 60% who reported a planned increase last year. Of those LPs anticipating an increase in commitments in this year’s survey, 30% attributed it to the overall growth of their global PE portfolios.
• Over three-fourths (78%) of respondents assess their EM PE portfolio performance as having met or exceeded expectations for the asset class, and 57% anticipate net returns of 16% or greater. Comparatively, just 39% of LPs expect similar results from U.S. funds, 35% expect similar results from Western Europe funds and 27% expect such results from Developed Asia.
• Following last year’s trend, non-BRIC markets continue to dominate in terms of being the most attractive investment destinations, but Latin America (ex. Brazil) has regained the top ranking from Sub-Saharan Africa which moved to third. Southeast Asia is ranked second and is also poised to see the greatest influx of new investors over the next two years.

EMPEA’s Year-End 2013 Industry Statistics confirms that investor sentiment is gravitating towards markets outside the BRICs, in particular Latin America (ex. Brazil), Sub-Saharan Africa and Southeast Asia, all of which hit notable milestones in 2013. For example, Latin American markets Peru and Mexico both reached five-year highs in terms of fundraising, together accounting for 55% of capital raised in the region. In Sub-Saharan Africa, capital invested reached a five-year high of US$1.6 billion, a 43% increase from the previous year. Southeast Asia also reached a six-year high in terms of deal activity and a 39% increase in capital invested from 2012.

““The results from the latest LP survey show that investors in emerging markets private equity are ‘ignoring the noise’ from short-term volatility and continue to believe in the EM PE investment thesis,” commented Maryam Haque, editor of this year’s survey and Head of Data and Analysis at EMPEA. “Though the pace of new LP commitments to EM PE will slow over the next two years and LPs have perhaps more realistically adjusted their return expectations, investors continue to believe EM PE funds will deliver higher net returns than their developed markets counterparts. Robust fundraising and investment activity for many non-BRIC markets in 2013 are positive signs for investment destinations that remain attractive, and LPs continue to seek opportunities in these economies, where capital remains scarce for promising businesses that appeal to the growing middle class.”

“For the second year in a row, more LPs plan to expand or begin investing in non-BRIC markets than in BRIC markets,” continued van Zwieten. “Over the next two years, more than half of LPs plan to begin or expand commitments to Southeast Asia in particular, where investors expect to see high net returns, while Latin America (ex. Brazil) and Sub-Saharan Africa also continue to attract interest from LPs. This speaks to a growing number of investment destinations within EM PE and the diligence with which LPs are exploring new opportunities outside the BRICs of the world.”

More information on the survey and its results can be found by clicking here.

EMPEA Launches New Limited Partners Council

In addition to announcing the most recent survey, EMPEA is also announcing the launch of its Limited Partners Council at the upcoming Institutional Investors-Only Summit, preceding IFC’s Global Private Equity Conference in association with EMPEA taking place the week of 12-15 May 2014 in Washington, DC. This advisory group is comprised of senior representatives from institutional investor organizations in the association’s membership and will provide expertise and leadership to guide EMPEA’s research and educational offerings aimed at LPs and initiatives to broaden the investor base for the asset class.

“We are very excited to begin working with our new LP Council,” said van Zwieten. “Each Council Member brings a wealth of knowledge and experience that will prove invaluable to EMPEA’s membership and staff as we all work together to raise the understanding and awareness of emerging markets private equity.”

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List of EMPEA Limited Partners Council Members:

Jesus Arguelles, Portfolio Manager, Ontario Teachers’ Pension Plan Board; Nicolas Bañados Lyon, Managing Director of Private Equity, Megeve Investments; Lindel Eakman, Managing Director, Private Markets, University of Texas Investment Management Company; Pierre Fortier, Vice-President, Investments Private Equity, Caisse de dépôt et placement du Québec; Alcina Goosby, Special Investment Officer, New York State Common Retirement Fund; Peter Keehn, Global Head of Private Equity, Allstate Investments, LLC; Serge Lépine, Chief Executive Officer, The Qatar Abu Dhabi Investment Company (QADIC) ; Anthony O’Toole, Executive Vice President, Chief Financial and Investment Officer, American Legacy Foundation; Alona Ponomareva, Principal Portfolio Manager, Private Equity, World Bank Pension Plan.

About the 10th Annual EMPEA Global Limited Partners Survey:

The findings of this study are based on data collected from 106 LPs from over 30 countries, representing a diverse mix of public and corporate pension funds, insurance companies, sovereign wealth funds, banks, asset managers, endowments, foundations, family offices, development finance institutions, multilateral organizations and funds of funds. These institutional investors collectively represent global private equity assets in excess of US$680 billion, with a median current allocation to emerging markets of 10% within their private equity portfolio.

About EMPEA:

EMPEA is the global industry association for private capital in emerging markets. We are an independent non-profit organization. As EMPEA celebrates our 10th anniversary in 2014, we have over 300 member firms, comprising institutional investors, fund managers and industry advisors, who together manage more than US$1 trillion of assets and have offices in more than 100 countries across the globe. Our members share EMPEA’s belief that private capital is a highly suited investment strategy in emerging markets, delivering attractive long-term investment returns and promoting the sustainable growth of companies and economies. We support our members through global authoritative intelligence, conferences, networking, education and advocacy.