Sixty percent of investors Preqin spoke to for its H1 2013 Investor Outlook: Private Equity Report currently invest in emerging markets, with a further 14% considering doing so in the near future. Following the onset of the global financial crisis in 2008 and the continuing market volatility, LPs have increasingly looked further afield for attractive investment opportunities.
Asia remains the most favoured investment destination among LPs, with almost half (49%) of the LPs we spoke to recently stating the region as the most attractive within emerging markets. Investor interest is further demonstrated with Kohlberg Kravis Roberts’s latest Asia-focused fund, KKR Asia Fund II, which held a first close in June 2012 after securing $3bn in LP commitments and has a target of $6bn. However, China specifically seems to be less favoured with LPs now, with slowing growth rates a concern for LPs. Thirty-one percent of LPs stated China as the most attractive region within emerging markets in 2012, compared with over half (51%) in 2009. Many investors stated regions within developing Asia as more attractive, including Taiwan and South Korea.
A significant 27% of LPs view Latin America as the most favourable region within emerging markets, an increase from 14% in December 2009. Brazil specifically was named by 12% of LPs, which represents a significant fall from 27% in December 2009, with high inflation in the country a growing concern among investors. Other regions within South America, such as Colombia, Chile and Peru were named as presenting favourable investment opportunities. Carlyle Group recently announced it held a final close for its Peru-focused buyout fund, Carlyle CrediCorp Peru Fund, on $308mn, ahead of its original target of $125mn, which demonstrates growing investor appetite for the region.
Other regions within emerging markets have also attracted greater investor interest in recent years. Africa was named by 18% of LPs in December 2012 as having the most attractive investment opportunities, compared to just 5% in December 2011, Furthermore, a fifth of LPs named Central and Eastern Europe compared to 12% the previous year.
It is evident that investor appetite for emerging markets remains strong and continues to increase. As investors become more confident investing in regions outside of their domestic location, the specific regions they look to gain exposure to are likely to change over the coming year, as well as over the longer term.