Preqin’s Private Debt Online database currently tracks 216 institutional investors globally that have a preference for, or have previously invested in, private debt within emerging markets. An emerging market is defined as a country whose economy is progressing towards an advanced economy, but does not have the same level of market efficiency as developed economies. Here we examine private debt activity within emerging markets such as Brazil, Russia, India and China (BRIC).
Preqin data shows the differing appetites of institutional investors for emerging markets. Of the investors that hold a preference for private debt funds within emerging markets, private sector pension funds make up 16%; 14% are public sector pension funds and private equity fund of funds managers make up a further 14%. In contrast, banks account for only 6% of this group, with wealth managers (4%) and investment banks (2%) also accounting for small proportions.
Of the investors in private debt that are actively seeking investment opportunities in emerging markets, the largest proportion (44%) of investors are based in North America, followed by Europe (26%) and Asia (11%). Investors outside these three regions account for 19%.
Preqin data demonstrates a varied appetite for emerging economies, as shown in the chart above. Of the investors that have a preference for or have previously invested in emerging markets, 38% look to Greater China, 33% prefer South America, 30% each have a preference for South Asia and Eastern Europe and 23% and 21% prefer Africa and the Middle East respectively. This breakdown indicates BRIC economies are still favoured by investors when allocating capital to emerging markets. However, the recent volatility being experienced in these countries, particularly China, may impact this trend. Low visibility is a key risk for investors in emerging markets and, as highlighted recently by Oleg Melentyev, head of US credit strategy at Deutsche Bank, volatility tends to stay for months at a time. In the face of this, whether investors will retreat from these economies due to risk or allocate more capital in favour of gaining higher returns is certainly something that should be watched.