According to Preqin’s Private Debt Online database, there are currently 34 private debt funds in market with exposure to emerging economies. Together, these funds are targeting commitments of $20bn, with the current average fund size at $578mn. The table below provides a breakdown of the five largest private debt funds currently in market that are focusing on these particular countries. The methodology used to formulate this table considers emerging markets to be within Asia and BRIC countries.
The top five funds shown above indicate the strong presence of distressed debt vehicles offered by fund managers looking to capitalize on potentially distressed opportunities within emerging markets. Distressed debt funds account for 55% of all capital being targeted by managers planning to invest in emerging markets. The prominence of this strategy could be supported by the fact that distressed debt funds tend to call for larger pools of capital when compared with other private debt strategies such as mezzanine or special situations.
The table highlights how both investors and fund managers view investing in emerging markets as an important means through which they can achieve portfolio diversification. ICG Asia Pacific Fund III is raising capital exclusively for one region, yet the remaining funds in the top five are targeting emerging markets as part of a multi-regional strategy. This suggests that the largest funds are mitigating risk through also investing in more established markets, further highlighting the lack of large private debt funds exclusively targeting emerging markets. Furthermore, the exposure of these large multi-regional strategies funds to emerging markets appears to be mostly limited to Asia.
Emerging markets continue to attract significant capital from various private debt strategies; however, several factors restrict the flow of capital into these markets. Private debt fundraising in emerging markets is being fuelled by borrowers’ strong demand for distressed debt within these regions and a preference for this particular strategy among potential investors. However, this willingness to invest appears dependent on exposure to emerging markets being part of a multi-regional strategy and gained largely through Asia, as investors seek to both diversify and mitigate risk.