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The Make-up of Emerging Markets-Based Investors in Private Equity – June 2015

by Katie Edwards

  • 18 Jun 2015
  • PE

Private equity investors have become decidedly more cautious when committing capital to emerging market-focused opportunities, with Preqin’s Investor Survey at the end of 2014 revealing that 25% of LPs interviewed were looking to decrease their allocation to emerging markets-focused private equity funds in the longer term. Despite this, a significant proportion of investors were also looking to increase their investments in the region over both the short and long term, showing that the region still remains attractive to some. This blog takes a look at emerging markets-based investors, which are becoming more and more important in the development of private equity in the region, acting as a key source of capital. 

Preqin’s Investor Intelligence tracks 592 active emerging markets-based LPs, with the largest proportions based in China (28%), South Korea (14%) and India (11%). Institutional investors based in emerging markets evidently have a preference for private equity funds targeting the region, with 71% having previously invested in, or have expressed an interest in committing to, funds targeting emerging markets. Fourteen percent of emerging markets-based LPs have previously shown a preference for both North America and Europe. However, of the 105 emerging markets-based LPs looking to commit to new private equity funds over the next 12 months, most (39%) will target Asia focused-funds. Thirty-two percent of emerging markets-based LPs will target North America, 23% will look towards Europe, while 17% will target predominantly emerging markets-focused vehicles over the coming year. 

The composition of investors within emerging markets differs from that of the structure of the overall limited partner universe. Private equity investors as a whole mainly comprise foundations, pension funds and wealth managers. However, 15% of emerging markets-based LPs are corporate investors, followed by government agencies and banks (representing 11% each). An example of an emerging markets-based investor that is looking to make new commitments to the asset class over the coming year is Korea Venture Investment Corporation (KVIC). The $2bn government agency will target venture capital funds in Asia and North America, considering a diverse range of industries. Of the emerging markets-based LPs that stated a fund preference for the next 12 months, the majority (57%) are targeting buyout vehicles; 41% look to growth funds and approximately one-third have a preference for venture capital funds. 

In comparison to other regions, emerging markets-based LPs represent a small proportion of investors within the private equity industry, making up just 10% of the LPs tracked on Preqin’s Investor Intelligence. Emerging markets-based LPs will be crucial to the growth of private equity in the region, and are continuing to view the asset class positively, as reflected in their new commitment expectations for the coming year, with a target allocation of over 14%, higher than the current allocation to private equity of just 10%.

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