Private Equity Sticks with Asia

A recent release from the Emerging Market Private Equity Association reveals some interesting trends:

Total fund raising for private equity funds dedicated to investing in emerging markets was down in 2009, way down, from US$66.5 Billion in 2008 to $22.6 Billion in 2009, but fund raising for developed markets private equity showed almost the same percentage decline.  Private equity investors were constrained by cash crunch, as credit tightened and older deals struggled to generate cash flow for reinvestment elsewhere.

Private equity investment in emerging markets fell by 54% to $22.1 Billion, but emerging markets captured a much larger share of the shrinking pool of total global private equity investment, moving from 14% in 2008 to 26% in 2009.   As recently as 2006, emerging markets were attracting only 9% of private equity investment.  Note that investment can out pace dedicated fund raising as private equity funds with geographical flexibility look more frequently to emerging markets.

Asia became an even bigger magnet for private equity fund raising, attracting $15.9 Billion ( 70% of the global total) in 2009 compared to $39.7 billion (60%) in 2008.  China and India together captured nearly two-thirds of the Asian investment.

What does this tell us about emerging market private equity in 2010?  Look for more, lots more.  Emerging market investments are trending rapidly toward an ever  bigger slice of the private equity pie.  In 2010 that's likely to be a bigger slice of  a bigger pie, but things will really open up in 2011 if the developing world economies recover fully and those vintage private equity deals are cranking out cash again.

Look a little farther afield.  Competition for private equity opportunities has to stiffen in China and India at some point, and problems like Google, Rio Tinto and a possible housing bubble might give some private equity managers pause to  consider how many eggs they really want in the China basket.  Meanwhile, Africa is hot (permission to groan ) and many of the  “less sophisticated” banking systems of Central Europe suffered less damage in the financial crisis, leaving some countries in that region positioned for growth.

Photo Credit: Torley