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Emerging private equity slogs on despite crisis

LONDON - Private equity investors intend to continue making new investment in emerging markets despite the global economic crisis, a survey showed on Monday, seeing them as offering the only growth in a faltering world.

A survey by the Emerging Markets Private Equity Association showed 78 percent of institutional investors in emerging markets still intending to commit to additional deals over the next five years, with 49 percent intending to do so within the next two years.

That compares to 43 percent of those surveyed who expected to make similar moves in the developed world private equity business over the next five years.

Developed world private equity has been savaged by the drying up of credit, as many private equity buyouts had previously been leverage based—but in contrast most emerging private equity deals will always be cash-based, and were even before the crash.

“Investors recognize that emerging economies are the only ones still growing, and they know that, since private equity deals in emerging markets don’t rely on debt, the collapse of the global leveraged finance markets won’t impede deal flow,” said EMPEA president Sarah Alexander.

The survey also showed that 62 percent of those already invested in emerging markets would maintain or increase their new commitments in 2009, although 38 percent would cut back, mainly citing cash constraints and over allocation to private equity.

Most of those surveyed believed the risk of emerging private equity had increased over the last year, particularly in Russia, Central and Eastern Europe—some of the areas worst hit by the crisis—as well as Africa.

The survey showed 77 percent of investors expecting annual returns of over 16 percent from their emerging private equity funds over the next three to five years, compared to only 43 percent expecting the same from their wider private equity portfolio.

They ranked China as the most appealing emerging markets private equity destination, followed by Brazil and India.

Interest in Russia was said to have declined markedly.

“Existing emerging market investors probably have a real advantage,” said Alexander. ”Those ... who are already familiar with emerging markets private equity can recognize the managers who will invest profitably over the long term. For investors without this familiarity, the perceived risk may be less acceptable.”