Emerging markets hit by global fundraising drop

Emerging markets funds lost two percentage points in terms of global fundraising market share last year, with $23bn raised reflecting a 66% drop from 2008 totals.

Fundraising for the world’s emerging markets dropped 66 percent in 2009 to $22.6 billion, according to research from the Emerging Markets Private Equity Association (EMPEA).

While the drop in fundraising was in line with the 65 percent decline seen in developed markets in the same period, the portion of global fundraising accounted for by emerging markets fell to 9 percent in 2009, from 11 percent in 2008.

“Dedicated pools of capital for emerging markets may be down, but the level of investment activity in 2009 demonstrates that managers of more flexible capital in global funds see greater opportunities in the emerging markets than elsewhere,” commented Jennifer Choi, director of research at EMPEA.

On the investment front, emerging markets saw a leap in their share of global activity, accounting for 26 percent of the global total in 2009, compared to 14 percent in 2008.

Last year some $22.1 billion was invested across 674 deals in emerging markets, representing a 54 percent drop in total investment value and 11 percent drop in number of private equity transactions from the year before. Developed markets on the other hand saw 79 percent decrease in investment value and 50 percent fewer transactions over the same time period, according to EMPEA.

Investments in emerging Asia made up the bulk of activity, accounting for 63 percent of the value and 70 percent of the number of transactions of all emerging markets deals.

Likewise, as in previous years, emerging Asia saw the lion’s share of funds raised in 2009, accounting for 70 percent of all emerging market fundraising, up from 60 percent in 2008. Of the $15.9 billion destined for emerging Asia, China- and India-dedicated funds accounted for $6.6 billion and $4 billion – or 41 percent and 25 percent – respectively.

In contrast, funds raised for the Middle East and North Africa slumped from 10 percent of the emerging markets total in 2008 to only 5 percent in 2009, dropping from $6.9 billion to $1.1 billion.

EMPEA predicted that 2010 would remain a challenging year for emerging market GPs, with the research body’s president and CEO, Sarah Alexander, saying investors' plans to increase allocations to emerging markets would be hampered as “a significant portion of capital is locked up in older vintage buyout funds that have yet to produce significant distributions”.

“In the near-term, domestic investors and development finance institutions will play a pivotal role,” she stated.

In 2008, emerging markets private equity funds raised a record-breaking $67 billion. Emerging Asia accounted for $40 billion, or 60 percent, of that total.