By Peter Apps
LONDON (Reuters) – Investors continued to pour money into emerging markets private equity between January and April, raising $25 billion and on course to top last year’s total despite a downturn in developed markets, a report revealed.
The present level of fundraising suggests a total of $75 billion for 2008. That compares with $59 billion in the whole of 2007, the Washington, D.C.-based Emerging Markets Private Equity Association (EMPEA) said in a report released Tuesday. Although a sizeable increase, it would be a slowdown from the doubling of funds seen between 2006 and 2007.
“Recent record-breaking fundraising is further evidence that investors see long-term potential for strong returns in emerging markets,” said EMPEA President Sarah Alexander in a statement. “(Investors) recognise private equity markets in developing countries are maturing, and the turmoil in developed markets should have limited impact.”
While a reluctance of major banks to lend money has stifled Western buyouts, deals in emerging markets rely on cash or local banks less exposed to the global credit crunch.
The report said emerging market private equity funds were expected to deliver an average premium of 6.7 percent relative to U.S. counterparts, despite broadly similar management fees — 1.95 percent for emerging funds and 1.8 percent for those focused on North America and Europe.
“(Limited partners) who have stayed out of emerging markets due to perceptions about exceedingly high risks or transaction costs that erode any return advantage may be rethinking their private equity portfolio strategies,” said Alexander.
The EMPEA said 74 percent of private equity participants surveyed expected to increase commitments to emerging markets private equity over the next three to five years, with a third pointing to improvements in political and economic risk as the main reason for this.
It said Asia continued to dominate, particularly China and India, but with Latin America, Africa and the Middle East also attracting great interest from investors.
It said 52 percent of private equity limited partners polled expected to invest in Africa in the medium term against 30 percent now, while 65 percent planned to do so in Latin America against 40 percent now.
In the Middle East, 35 percent said they would invest there by 2013, against 11 percent now. (Editing by Sue Thomas and David Hulmes)