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Investor Appetite for Private Equity in Emerging Markets – September 2013

by Harry Young

  • 24 Sep 2013
  • PE

As the global economy continues to recover from the precarious conditions of the financial markets in recent years, a significant number of institutional investors are looking to emerging markets for more attractive returns on their investments. Research carried out by Preqin at the end of June 2013 for the Preqin Investor Outlook, Alternative Assets, H2 2013 report found that 53% of investors actively invest in emerging markets, while a further 15% are considering doing so.

Of the investors interviewed, 50% cited Asia as a key emerging market region that is highly attractive for investment at present. Within Asia, China and India proved to be particularly sought after private equity investment destinations, named specifically by 26% and 12% of investors respectively. LPs were also asked whether they anticipated that their allocations to investments in emerging markets would change over the next 12 months. The majority of investors interviewed (73%) stated they would look to maintain their exposure, and over a fifth (21%) suggested they would increase their allocation to the regions.

Examples of LPs’ continued interest in emerging markets include Washington State Investment Board, which has recently made a commitment of $300mn to Affinity Asia Pacific Fund IV, a buyout fund that targets Asia, including South Korea, Greater China and ASEAN. In addition, Pennsylvania Public School Employees’ Retirement System committed $100mn to Morgan Stanley Private Equity Asia Fund IV earlier this year; a buyout fund predominantly focusing on Greater China and South Korea.

Preqin’s Investor Intelligence currently tracks over 5,200 active investors in private equity, 28% of which are known to have a preference for, or have previously invested in private equity funds focusing on emerging markets. The majority of these investors (59%) are located in North America, 20% are based in West Europe, while the Middle East and South Asia represent 3% and less than 1% respectively. Of the institutional investors tracked by Preqin, 1,500 are actively looking to make new commitments to the asset class over the next 12 months. As LPs adapt their investment preferences to suit the current transitions in the developed and developing worlds, almost a quarter (24%) have stated that they will look to target funds focusing on opportunities in emerging markets over the coming year.

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