A little more than one-third of private equity investors without exposure to emerging markets funds plan to invest in such funds within the next two years, according to a new survey conducted by Coller Capital and the Emerging Markets Private Equity Association.
Close to half, 49%, of current emerging market private equity investors expect to commit additional capital to emerging markets within two years. Some 37% of limited partners with emerging markets investments expect that their 2009 commitments will be about the same as last year, with 11% significantly higher and 14% slightly higher than in 2008.
The remaining 38% expect to reduce new commitments for two key reasons: Nearly two-thirds cite cash constraints, while 37% say they're overallocated to private equity.
Emerging market private equity investors expect higher returns from their emerging market portfolios than from their global investments, the survey found.
Some 77% of limited partners expect net annual returns of more than 16% from their emerging markets private equity funds over the next three to five years, compared with 43% of limited partners who anticipate more than 16% returns for their entire private equity portfolios, the survey revealed.
Within their (investors') private equity portfolios, they expect that emerging markets will return better than developed markets, said Sarah Alexander, president of the EMPEA in Washington.
More than half of limited partners, 57%, stated their 2006 and 2007 emerging market private equity funds will be less affected by the global downturn than developed markets funds of similar vintages because they had much lower levels of leverage.
The funds did not really use leverage ... There were very few leveraged buyouts in the emerging markets 70% to 80% are growth capital, Ms. Alexander said.
When private equity investors ask themselves if they want to stay allocated in private equity and if so, where to put their money to work, emerging markets seems to be a good proposition, said Erwin Roex, partner at Coller Capital, a London-based private equity manager that invests on the secondary markets.
The survey of 156 global institutional investors was carried out in January and February.