Money flocks to emerging markets

Private equity in emerging markets continues to break records with 210 funds raising an all-time high of US$66.5bn in 2008, a 12% increase over the US$59bn raised in 2007.

According to the latest research from the Emerging Markets Private Equity Association (EMPEA), approximately 371 private equity funds focused on emerging economies are presently in the market looking to raise as much as US$144bn in capital.

Sixteen funds achieving final closes in 2008 raised US$1bn or more, versus 19 funds achieving that milestone in 2007 and four in 2006. Two notable closes in 2008, included two of the largest pan-emerging market funds raised to date, which closed at US$2.25bn and US$2.9bn.

Emerging Asia dominated the private equity landscape. The region represented 60% of the total funds raised in 2008 versus 48% in 2007. There was also a significant rise in the number of funds targeting multiple regions. Funds dedicated to Africa, and the Middle East raised 37% and 17% more than 2007, respectively.

President of EMPEA, Sarah Alexander said: “The private equity model in emerging markets is about equity investments in growing companies – not leverage. Whereas the lending draught in the West resulted in stalled buyout markets, in emerging markets deals are still getting done.”

Although the emerging markets are flourishing as a whole, Emerging Europe and CIS countries (including Russia) fell sharply, from 25% of the total in 2007 to 8% in 2008, due in large part to two multi-billion dollar funds that skewed the 2007 regional total.

For 2009, institutional investors remain hopeful, as a recent survey from EMPEA showed that 52% of institutional investors believe that their emerging markets fund portfolio will be less negatively affected by the financial crisis than their developed counterparts.