Investors shun EM private funds for public markets

Slowdowns in China and Brazil have taken a marked toll on private capital fundraising and investment, new data show.

Investors in private capital funds – including private equity, private infrastructure and real assets, and private credit funds – are pulling back from emerging markets, new data show.

According to statistics released by the Emerging Markets Private Equity Association, just $15.1 billion was raised for emerging markets investment in the first half of 2016, a 33 percent year-on-year decline. Invested capital was also down 20 percent to $13.3 billion.

Emerging markets’ share of global fundraising declined from 12 percent in 2015 to 7 percent in H1 2016, while their share of global investment held steady at 7 percent.

Going by the half-yearly statistics, private equity firms – which have raised $10 billion for emerging markets so far – are on track for their worst fundraising year since 2009, when $19 billion was raised by 142 funds.

Infrastructure and real assets took the biggest hit, with just $1.6 billion raised in H1 compared to $6 billion for the full year 2015. Private credit, on the other hand, appeared to be holding up, with $3 billion raised, compared to $5.9 billion for the full year 2015.

“The declines in the overall totals are mainly due to the weight of larger markets in the aggregates,” Robert van Zweiten, president and CEO of EMPEA, said in a statement.

“Ultra-low or negative interest rates across developed markets have again spurred large amounts of capital to be invested in emerging markets, driven first and foremost by the search for yield. However, most of the money appears to be going towards public markets. This is noteworthy since EM private markets have significantly outperformed EM public markets over every time period.”

The most marked drops in activity were in China and Brazil. Deal count and disclosed capital invested in China dropped 17 percent and 59 percent respectively year-on-year which, given the scale of activity in China compared to other emerging markets, had an “outsize effect” on overall investment figures, EMPEA said.

Invested capital in emerging Asia excluding China rose from $8.6 billion in the H1 2015 to $10 billion in the first half of 2016.

Political and economic difficulties in Brazil resulted in the lowest level of fundraising for the country since EMPEA began recording the statistics in 2006 – just $65 million, a 96 percent drop. Just $1.9 billion was raised for the whole of Latin America, down 46 percent.

Fundraising was down significantly – 75 percent – in sub-Saharan Africa, mainly due to the largest players in the market raising their latest funds in 2014 and 2015. However, the fall in commodity prices and currency volatility in several of the continent’s biggest markets did have a slight effect on deployment of capital, with capital invested down from $652 million in H1 2015 to $584 million.

“Many of the GPs in Emerging Asia and Sub-Saharan Africa, as well as Latin America, who raised record funds in 2014 and 2015 may have the opportunity to deploy capital at more favourable terms and in more attractive opportunities than in the recent past, given some of the downward pressure on currencies witnessed over the past 18 months and tighter financing conditions now prevalent in many emerging markets,” said Jeff Schlapinski, director of research at EMPEA.