North American Endowments Investing in Emerging Markets

by Louise Weller

  • 17 Jul 2012
  • PE

Emerging markets are an increasingly popular geographical preference for private equity investors, given the difficult market conditions in the developed markets of Europe and North America at present. At the end of 2009, two thirds (67%) of investors had an appetite for emerging markets, but by the end of 2011 this figure had risen to 76% of LPs. Furthermore, 156 funds with a primary focus on opportunities in emerging markets held a final close in 2005, raising an aggregate $37bn, whereas in 2011, 272 funds held a final close and raised a total of $75bn.

North American endowments are one investor group that has a particular interest in emerging markets. Preqin’s recent Special Report: North American Endowments as Investors in Private Equity Funds reveals that a significant 82% of this investor group invest in emerging markets, whilst a further 8% are considering gaining exposure to emerging markets in the near future, a higher proportion than in the limited partner universe as a whole.

In terms of geography, Asia was named by almost half (43%) of endowments as presenting the best investment opportunities within emerging markets in the current financial climate. China and India were named specifically by 38% and 29% of respondents respectively. South America is also a region attracting a great deal of attention from North America-based endowments, with 29% naming the region as presenting favourable investment opportunities, with Brazil named specifically by 24%.

North American endowments represent a significant amount of capital within the private equity industry, accounting for 8% of aggregate capital invested in the asset class as of June 2011. Despite the global financial crisis causing a number of endowments to become over allocated to the asset class as a result of the denominator effect, a significant 68% expect to make new fund commitments before the end of 2012 or in 2013. Furthermore, 94% of North American endowments plan to either increase or maintain their level of exposure to private equity over the longer term, indicating this investor type intends to remain a vital source of capital within the asset class.

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