“Investors are still increasing the proportion of their private equity commitments targeted at emerging markets. Why? Quite simply, because limited partners expect emerging market funds to outperform developed market ones,” said Erwin Roex, Partner, Coller Capital.
Beyond China, Brazil and India, which continue to dominate the rankings in terms of investment attractiveness, Emerging Asian markets (Vietnam, Indonesia and Thailand) will see the greatest expansion in commitments from current investors. “Sophisticated investors who have built their exposure in China and India are now looking for the next frontier and see great investment opportunities in less penetrated markets,” said Sarah Alexander, President and CEO of EMPEA.
“Investors are clearly drawn to markets with strong underlying growth rates, which trumps leverage in driving returns,” said Ms. Alexander. "Limited partners now see a mature group of fund managers with the skills and experience to capture the private equity opportunities fueled by growth and to minimize investor risk."
Only 11% of investors intend to slow their new commitments to emerging market private equity, compared with 38% one year ago. Those who do, cite cash constraints as the primary obstacle to maintaining commitments, followed by an over-allocation to private equity.
Here are some of the survey’s key findings:
Over half (57%) of limited partners that are currently invested in an emerging market private equity fund plan to accelerate their new commitments over the next two years.
Over the next two years, capital commitments to emerging market private equity funds will grow from the current 6%-10% of total commitments to 11-15%.
Over three-quarters (77%) of limited partners expect annual net returns greater than 16% from their emerging markets portfolio.
Nearly three-quarters (70%) of limited partners are either satisfied or very satisfied with the performance of their emerging market private equity portfolio relative to that of their publicly traded emerging market’s investments.