LPs urge GPs to show restraint in emerging markets

Economic turbulence is throwing up opportunities for emerging market-focused private equity funds to make investments at favourable prices, but capital-constrained LPs are urging caution.

LPs are demanding that their emerging markets GPs do not rush into acquisitions, even though buying opportunities are better than ever, because they are reluctant to sell off public equities to meet private equity capital calls.

“In the last six months the amount of communication we have had with our LPs has been unprecedented,” said Archana Hingorani, executive director of Indian private equity firm IL&FS Investment Managers, at a panel discussion at the PEI Media Emerging Markets Private Equity Forum this morning.

If you liked this stuff last year, you should love it now.

Thomas Barry

“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,” she added.

The urge from LPs to GPs to retain some capital comes at a time when emerging market private equity firms are hoping to accelerate investment.

A poll of conference delegates suggested that emerging markets practitioners should slow down the pace of their capital deployment in light of market conditions. However, Thomas Barry, founder and chief executive of Africa-focused Zephyr Management, argued the opposite, suggesting that “If you liked this stuff a year ago, you should love it now,” referring to the lower priced assets in the market place.

“This is a cyclical business. If we are in a down-cycle, we should be accelerating our investment,” he added.

Barry tempered his comments by advising GPs to keep some money on standby, as portfolio companies will inevitably require follow-on equity investments.

Standard Bank Private Equity, which like Zephyr has a strong focus on African investments, will also increase its investment pace. Global head Graham Thomas said that the “bread and butter” nature of emerging markets private equity, specifically growth investing, positions the market well for tougher conditions.

Chairman of Egyptian firm EFG-Hermes Private Equity, Yasser El Mallawany, added that while he doubted that any institutional LPs would default on any capital calls, there may be defaults from high net worth individuals.