PE Sees Green In Emerging Markets

Private equity funds raised a record $59 billion for investments in emerging markets in 2007, a 78% increase over 2006, according to the Emerging Markets Private Equity Association (EMPEA).

Washington, D.C.-based EMPEA found that the private equity community has raised $118 billion for emerging-market investments over the past three years, compared to $13 billion from 2001 to 2004.

About 49%, or $28.7 billion, of the capital raised in 2007 went toward opportunities in Asia. Nevertheless, the amounts raised for Central and Eastern Europe grew more than 300% over 2006 levels, followed by a 71% increase in private equity capital for the Middle East and a 66% rise in capital for Latin America.

"2007 was a year of significant milestones for the asset class," said Sarah Alexander, EMPEA president. "What was once a primarily development finance-backed experiment is now, in many emerging markets, a credible, commercial asset class attracting sizable investments from well-known institutional investors, including public pension funds."

The average fund size for those focused on emerging markets also increased to $426 million, compared to $272 million in 2006. Funds concentrating on investments in natural resources, technology, infrastructure and agriculture also grew significantly, especially those focused on India.

"2007 seemed to be the year of infrastructure in some markets," said Alexander. "In India, investments in infrastructure will be vital to ensure that the pace of economic growth can be sustained. For investments in the industrial and agricultural sectors to bear fruit, India needs better roads, better ports and more reliable energy supplies, and private equity funds are gearing up to finance these projects."

In addition, EMPEA finds that dealmaking in emerging markets has not been affected by the credit crunch. "The markets need time to adjust to this new environment, but it's unlikely we'll see the same level of difficulties in getting deals done relative to the US and Western Europe, primarily because use of significant leverage is less prevalent in private equity deals in the emerging markets, and, when debt is used, it can often be provided by local banks that aren't affected by the credit squeeze," said Alexander.