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The Make-up of Emerging Markets-Based Investors in Private Equity – June 2013

by Tom Carr

  • 11 Jun 2013
  • PE

Emerging markets have attracted significant attention over recent years, as with growth rates in developed markets stagnating, many investors have looked to gain exposure to emerging markets for potentially higher returns, and also to diversify their portfolio by geography. Furthermore, with many LPs in developed markets wary concerning allocating capital to illiquid investments, emerging markets-based investors are becoming an increasingly important source of capital for managers looking to secure a successful fundraise.

Preqin's Investor Intelligence service tracks 504 active emerging markets-based LPs, with the largest proportion (25%) based in China. Interestingly the make-up of LP type among investors in emerging markets differs noticeably from that of the whole limited partner universe, perhaps illustrating the structural difference between emerging and developed markets. Corporate investors (14%) account for the largest proportion of emerging market based investors, followed by government agencies (12%) and private sector pension funds (12%). By comparison, in the whole limited partner universe, corporate investors account for a significantly smaller 4% of all investors, and government agencies only 3% of the total.

Perhaps unsurprisingly, investors based in emerging markets have a strong preference for private equity funds targeting the economic region, with over two-thirds (68%) having either previously invested in emerging markets-focused vehicles or having expressed a preference for doing so. Furthermore, with a significant amount of emerging markets investors based in Asia, it is also unsurprising that nearly two-thirds of LPs (65%) consider funds targeting the continent. However, investors based in emerging markets are more cautious about allocating capital outside their geographic region, with only a quarter considering North America-focused funds and a fifth considering vehicles targeting Europe.

Importantly for managers on the road in the coming year, emerging markets-based investors look likely to be a useful source of capital, with a sizeable 196 LPs telling Preqin they will be actively targeting or considering allocating capital to the private equity asset class within the next 12 months. Emerging markets-based LPs looking to allocate capital to private equity in the next 12 months are also open to a range of fund types, with 44% targeting growth funds, 43% venture capital funds and 38% buyout funds.

With LP capital continuing to be scarce, it is important for managers on the road that a large proportion of emerging market-based LPs are continuing to view the asset class positively and are expecting to make new commitments to private equity funds in the coming year.

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