A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

INDUSTRY OVERVIEW

Emerging Asia continues to dominate the emerging markets landscape, representing around 60% of the total funds raised and of the investments in the region in 2008. Other emerging sub- regions lag far behind. In 2008, five countries accounted for almost 50% of all investments: China, India, Brazil, Russia and South Africa, as shown in figure 20. In particular, companies in China and India received the majority of this new capital with $9.0 billion and $7.6 billion invested respectively. Both coun- tries witnessed enormous growth between 2007 and 2008 in terms of fund raising and no other single region accounted for more than 10% of total capital raised at that time.

Figure 20 – Emerging markets fund raising and investment, breakdown by country (2007-H1 2009)

In $bn

2007

2008

H12009

FUND RAISING Brazil

2.5 3.9 1.8 4.6 0.5 5.3 9.5 0.8 9.9 3.4

3.6

0.2 3.9 0.9 2.5

China

14.5

Russia

0.9 7.7 0.2

India

South Africa

N/A

Other countries INVESTMENT Brazil

45.9

39.7

8.7

3.0 9.0 2.6 7.6 1.2

0.4 6.5 0.1 1.9 0.5

China

Russia

India

South Africa

Other countries 3.4 Source: EMPEA (Emerging Markets Private Equity Association), October 2009 24.3 24.4

Source: EMPEA (Emerging Markets Private Equity Association), October 2009 With a private equity investment/GDP rate of only 0.21% 32 , today China remains Asia’s most attractive destination in investors’ eyes, although caution dictates that deals are taking longer to close. The market was still doing relatively well in the first half of 2009 and no major collapse was seen. This was not the case in India, which saw investments dropping significantly in the first half of 2009. Market conditions have recently deteriorated in the country. Foreign investors, including big international names such as Blackstone and Fidelity, have now turned very cautious about making investments in India after being hit with hefty losses in 2008. In India’s private equity arena, experienced investors argue that there are too many players and not enough invest- ments, with an estimated 540 active funds in the country 33 . A survey carried out in April 2009 34 showed that LPs ranked Brazil as the second most attractive destination for GP investment over the following 12 months behind China, while confidence in Russia as an investment destination declined markedly. The survey also revealed that LPs with exposure to emerging markets had no intention of retreating and believed that recent-vintage emerging markets private equity funds would outperform equivalent developed market funds because of a lower reliance on debt to finance transactions and continuing – albeit slow eco- nomic growth. The real challenge will be to convince Western investors to maintain exposure to what are considered riskier markets. Indeed, the majority of LPs believe the risks of emerging markets private equity have increased over the last year, especially in Russia, Eastern Europe, and Africa.

32 Source: EMPEA, “Emerging markets private equity statistics”, 29 October 2009 33 Source: Asia Money, “Core private equity players prepare to place their bets”, May 2009 34 Source: EMPEA, “Emerging Markets Private Equity Survey 2009”, April 2009

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