Attracted by rapidly growing emerging economies, private equity players are expected to build their portfolio by as much as 20 per cent in the next two years, with India and China likely to corner the lion’s share of these allocations, says a survey.
According to a global annual survey by Emerging Market Private Equity Association (EMPEA) and Coller Capital, private equity players expect the proportion of their PE allocations directed at emerging markets to rise to 16-20 per cent in two years’ time from the prevailing 11-15 per cent level.
“Institutional investors facing escalating liabilities within the next 5-10 years will find growth opportunities in emerging markets very compelling,” EMPEA President and CEO, Ms Sarah Alexander, said.
Ms Alexander added, “While China and India still remain on top limited partners wish-lists, investors are also shifting their gazes to the less penetrated markets of Latin America and Southeast Asia.”
Emerging PE markets in Asia would see the greatest expansion in commitments from existing investors in the next two years — 40 per cent of limited partners plan increased exposure to China, 34 per cent to India, and 36 per cent to other emerging Asian PE markets, the report said.
Limited partners are those institutions or individuals that contribute capital to a private equity fund, while general partners are the top-ranking partners at a private equity firm and the firm managing the private equity fund.
The report mentioned political risk as a major deterrent to investing in Russia, West Asia and North Africa (MENA) region and sub-Saharan Africa, while high entry valuations were the biggest hurdle for new investors in India, China and Brazil.
Private equity investors have the highest return expectations for emerging Asia PE funds, with 78 per cent PE investors expecting annual net returns of as much as 16 per cent or more.
The report further notes that Brazil has “leapfrogged” China as the most attractive market for deal-making in the next 12 months and the nascent Asian PE markets are now perceived to be as attractive as China.