Emerging markets are cream of crop

Interest in emerging market private equity opportunities continued unabated in 2007, with 204 funds collectively raising US$59bn in fresh capital, a 78% increase over the US$33bn raised in 2006.

According to the Emerging Markets Private Equity Association (EMPEA), fundraising dedicated to the emerging markets over the last three years has totalled more than US$118bn, versus only US$13bn in the previous three years.

Sarah Alexander, president of EMPEA, said: “2007 was a year of significant milestones for the asset class. What was once a primarily development finance-backed experiment is now, in many emerging markets, a credible, commercial asset class attracting sizable investments from well-known institutional investors, including public pension funds,”

Fund sizes in 2007 shattered records. Notable closes included a US$4bn oversubscribed pan-Asia fund, a US$2.1bn fund for Central Europe, and three US$1bn-plus country-dedicated funds in Brazil, China, and India. Nineteen funds had raised US$1bn or more as of December 2007, compared to only four that achieved the same milestone in 2006. Average fund sizes also increased sharply, with closed funds averaging US$426m in 2007, versus US$272m in 2006.

Growth also expanded to sector-specific funds, with the most notable increases in natural resources, technology, infrastructure, and agriculture.

Alexander said: “2007 seemed to be the year of infrastructure in some markets. In India, investments in infrastructure will be vital to ensure that the pace of economic growth can be sustained. For investments in the industrial and agricultural sectors to bear fruit, India needs better roads, better ports, and more reliable energy supplies, and private equity funds are gearing up to finance these projects.”

Emerging Asia remained the premier destination for capital commitments, with US$28.7bn in 2007, or roughly 49% of total fresh capital raised. This represents a 48% increase over the US$19.4bn raised in 2006. However, the growth in Asian fundraising was less dramatic than elsewhere. Central & Eastern Europe saw totals surge by more than 300% due to two record-breaking multi-billion dollar closes. Fundraising in Latin America was up by 66%, while capital raised for investments in the Middle East surged by 71%.