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Private Equity Fundraising in Emerging Markets – April 2015

by Allison Polchinski

  • 16 Apr 2015
  • PE

Preqin’s Funds in Market online service shows there has been an increase in the amount of capital invested in emerging markets over the past few years, reflected by growth across several key fundraising statistics. Preqin defines emerging markets as areas with higher inflation and volatile growth, including the following regions/countries: Mexico, South America, China, India, Russia, Central and Eastern Europe and South Africa. According to Preqin data, 2015 looks to be another strong year for investments in emerging markets, with 568 funds currently in market seeking an aggregate $166bn.

Venture capital is the most prominent fund strategy for managers raising capital to invest in emerging markets, with 76 venture capital-focused funds closed in 2014. It is unsurprising that venture capital is a widely used strategy for funds investing in emerging markets, as these countries and regions contain many companies seeking capital to grow and expand. Despite a significantly smaller number of funds closing in 2014 (31), buyout-oriented funds contributed the largest proportion of capital to emerging markets during the year, raising a total of $34bn.

All of the largest emerging markets funds in 2014 were raised by established, profitable fund managers that typically invest in more established regions. Warburg Pincus, First Reserve and Morgan Stanley raised some of the largest funds to include emerging markets as part of their wider geographic focus over the past eight years. This could indicate that breaking into emerging markets is easier for managers with an existing history of profitable fundraising, even if they have previously invested in more traditional markets. Historically, many funds seeking to invest in emerging markets concentrate their investments in Asia, drawn to the large markets of China and India.

From 2012 to 2014, the proportion of emerging markets-focused funds closing below their target size decreased from 52% to 40%, while the percentage of funds closed above target has increased from 37% to 45%. Over the same time period, average fund size has not experienced a corresponding change, indicating that the increase in the number of funds reaching their target is not due to lowered target sizes. Smaller funds typically dominate this segment of fundraising because investments in emerging markets are higher risk than those targeting established countries. Although small funds generally make up the majority of vehicles investing in emerging markets, Preqin’s Funds in Market online service shows that over 30 funds with a target of $1bn or more are currently in market and looking to invest in emerging markets.

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