Brazil will be the most attractive emerging market country for private equity investors in the next 12 months, a just-released survey shows.
The survey, by the Emerging Markets Private Equity Association and Coller Capital, a private equity firm that invests on the secondary markets, showed China was second and other emerging Asian countries, third.
This is the first time Brazil was ranked first, although it had been among the top three countries for at least the past three years. The reason: Investors are saying “Brazil is expensive, but less expensive than China and India,” Sarah Alexander, president and CEO of the EMPEA, said in an interview.
The investment thesis is that although general partners might be paying close to top dollar today, the prices they will get at exit will make today’s prices seem cheap, Ms. Alexander explained.
Private equity investors consider China and India more competitive than any other country, she noted. Some 73% of private equity investors expect general partners to experience intense competition in China over the next 12 months; 68%, in India; and 46%, Brazil. This is the first time the EMPEA and Coller asked this question, Ms. Alexander said.
India has lost its luster as an emerging market private equity destination in the eyes of private equity investors. In last year’s survey, China was first; Brazil, second and India, third. This year, however, India slipped to fifth, behind Latin America ex-Brazil.
Survey respondents believe prices in India are too high. For the first time EMPEA and Coller Capital executives included a question asking what factors would deter private equity investors from investing in individual markets over the next two years. Fifty-eight percent of respondents indicated that entry valuations were too high. A much smaller percentage, 14% to each, stated that the limited number of established general partners and the weak exit environment were other deterrents.
Also two-thirds of investors surveyed expect to increase their commitments to emerging markets private equity in the next two years.
At the same time, 54% of limited partners (vs. 77% last year) expect annual net returns from emerging markets private equity to be 16% or more within the next three to five years.
By comparison, one-third of private equity investors expect similar returns from global private equity, up from 29% a year ago.
Some 156 institutional investors in North America, western Europe, central and eastern Europe, Asia, Africa, the Middle East and Latin America responded to the survey. IE Consulting conducted the survey for the EMPEA and Coller in January and February.