The amount of private equity money heading towards Central and Eastern Europe increased by 300% in 2007 according to analysis from Swiss alternative asset advisory firm Strategic Capital Management (SCM).
In an exclusive for EVCJ, the report, ‘Private equity markets in Asia and the Rest of the World’, reveals that the average fund size in Emerging Markets increased sharply from USD$272m in 2006 to USD$426m in 2007.
The trebling of fundraising in Central and Eastern Europe is attributed to the US$7bn raised by Marfin, the €1bn plus raised by Mid Europa Partners, and the fourth Baring Vostok Private Equity fund which closed on €750m.
It’s a similar story, if less spectacular, elsewhere. Latin America’s fundraising grew by 66%, while capital raised for investments in the Middle East increased by 71%.
The International Monetary Fund’s April 2008 World Economic forecast foretold a potential shift in the world economy. China’s economy is to surpass America’s by 2027; Brazil Russia India China (BRIC) will surpass the G7 by 2032.
The report explains that in the BRIC category, Russia and Brazil will be dwarfed by both China and India by 2050 and the rest of Asia will be much wealthier. Estimates by the US Department of Agriculture say the wealthiest regions outside the G6 in 2015 will be Hong Kong, South Korea and Singapore.
The emerging Asian market private equity transaction volume from 2003 to 2007 increased five-fold, from USD$10bn to over USD$50bn in 2007. A similar jump occurred in the MENA region, which saw an increase of USD$5bn to over USD40bn.
But with all of this growth comes risk. The biggest threats to emerging markets are that of inflation caused by the commodities boom and overheating caused by staggering levels of fundraising. The Emerging Markets Private Equity Association says that fundraising dedicated to the emerging markets has risen from USD$13bn (three years ago) to USD$118bn over the past three years. Asia’s fundraising exceeded the investment amounts in the period 2006 to 2007 by 10.5x, which the report indicates could lead to the development of a major bubble.
For investors looking to Asia local GPs look to be the way forward. In terms of large buyouts, which are still rare outside the US, Canada and Europe Asian firms are becoming more involved. In 2006 large buyouts in Asia were handled 75% by global firms, 25% Asian firms. In 2007 29% were handled by global firms, 14% by Asian firms and 57% mixed consortium.