Private equity and venture capital funds investing in emerging markets distributed $12 billion to limited partners in 2011, a 17 percent rise year-on-year and the highest amount on record, according to new research from consultant Cambridge Associates.
“A lot of the funds were raised in the 2005 to 2007 vintage years, and obviously these funds are now getting to the stage where they’re actually generating exits, so it’s a function of the industry maturing,” Cambridge managing director Miriam Schmitter told Private Equity International. “Last year was a great year in [emerging] markets. IPO markets were quite welcoming in many of the regions, especially China, M&A was working fine [and] there have been some secondary sales, so all of that played into the equation.”
Distributions from developed market funds outside of the US also shot up a dramatic 74 percent last year to $32.3 billion, according to Cambridge.
In terms of performance, Cambridge’s non-US developed markets index returned 2.7 percent for the 12-month period ending 31 December 2011, beating the emerging markets index which returned -1.5 percent during the same period. Both indices outperformed their public market counterparts, however, which returned -12.1 percent and -18.2 percent, respectively.
The slight positive and negative returns generated by the two private market indices during 2011 are contrasted by more significant – and both positive – performance for both in the longer term. During the 10-year period ending 31 December, 2011, the non-US developed market index returned 13.7 percent, while the emerging markets index returned 11.2 percent.
“If you look at the 10-year return, that gives you a very solid picture of mature funds,” Schmitter said. “On the other hand, when some of those investments were made or funds were raised, it was a different industry.”
In terms of specific sectors, media investments led the non-US developed market index, returning 10.3 percent, while IT investments performed the best in the emerging markets index, returning 31 percent.
Cambridge’s database of developed non-US and emerging markets private equity and venture capital funds is comprised of more than 900 funds formed from 1986 to 2010. The non-US developed markets index includes private equity and venture capital funds focusing on Australia, Canada, Israel, Japan, New Zealand and Western Europe. The emerging markets index includes private equity and venture capital funds investing primarily in Africa, emerging Asia, emerging Europe, Latin America, and the Middle East, excluding Israel.