LP appetite for emerging markets wanes

According to a survey of LPs by placement agent Probitas Partners, declining interest in China and India is driving a drop-off across emerging markets.

Emerging market private equity is less attractive to limited partners than it was this time last year, according to a survey by placement agent Probitas Partners.

Though China remains the most popular emerging markets target, only 31 percent of respondents placed it among their four most attractive emerging markets compared with 50 percent last year, according to the firm’s Private Equity Institutional Investor Trends for 2018 Survey.

Second-placed India has also seen a drop-off, with 25 percent of LPs placing it among the top four compared with 34 percent last year.

Other emerging markets that witnessed a decline in attractiveness include South Korea, which dropped to 13 percent from 16 percent; and pan-Asian funds, which were chosen by 15 percent of respondents, down from 18 percent in last year’s survey.

“On the back of continued economic and political issues in key emerging markets countries, more investors feel that the risk/return dynamic for private equity is more favourable in developed markets,” the report noted.

A few markets had a slight reversal in fortunes. South-East Asia, the third most popular emerging market overall, was picked by 19 percent of investors, compared with 17 percent last year.

Latin America also had a slight uptick in popularity. Pan-Latin America was cited by 15 percent of LPs as a top-four emerging market compared with 9 percent in last year’s survey, while Brazil’s attractiveness increased by 1 percentage point to 14 percent.

One third of respondents said they do not currently invest in emerging markets compared with 22 percent last year.

The survey attracted 98 institutional investors, with fund of funds managers (28 percent), insurance companies (15 percent), advisors (15 percent) and public pensions (14 percent) comprising the bulk of responses.