Friday Letter A chorus of concern – and an optimistic look ahead

Economic decoupling now looks a romantic notion of the past – made plain this week by GPs and LPs at the PEI Emerging Markets Forum in London. But while not immune from the problems plaguing global markets, private equity in emerging markets is also hoping to benefit from the fallout.  

Private equity GPs seeing some portfolio companies suffering from the global financial turmoil is not just a Western phenomenon. Nor is LPs imploring their general partners to put off capital calls.

“They want to know that we are keeping some powder dry, because they do not want to sell off their listed equities now in order to make capital calls,”  Archana Hingorani, executive director of Indian private equity firm IL&FS Investment Managers, said at the fourth annual PEI Emerging Markets Forum in London this week.

LP worries over capital calls is a global phenomenon. Chances are many institutions will start to sell assets soon, including private equity fund interests, as Harvard University’s endowment and others have been forced to do already.

Crucial from an emerging markets private equity point of view is the fact that practitioners there are now focused on the same issues as private equity people in the West. This puts yet another nail in the coffin of the “decoupling myth” – the theory that emerging markets are insulated from developed markets’ activities.

“It always was a myth,” Bill Emmott, former editor of The Economist, told PEO. “In a world that is characterised by global trade, global investment, by connectedness, how could anyone decouple in a connected world?”

Speaking on the sidelines of the conference, Jonathon Bond, partner at emerging markets-focused Actis, agreed. “Of course, all the markets are going to be impacted. Particular segments more than others.”

However, Bond and his peers also emphasised there are still great deals to be done in rapidly growing emerging markets, particularly with regards to consumer- and infrastructure-oriented transactions.

John Zhao, chief executive of Beijing-based Hony Capital, also had an upbeat message. He pointed out the China’s private equity market in particular is even more promising now given that China’s public markets have fallen precipitously and are effectively closed to new issues. The result, he said, is that for the first time private equity offers a better prospect of raising capital than the domestic stock market.

One left this global gathering of private equity leaders aware that while the whole world is indeed weathering economic strife, it – and private equity – continues to turn.