Approximately one-fifth of global dry powder, or about $231 billion, is earmarked for investment in emerging markets, according to Boston Consulting Group (BCG).
The global management consulting firm recently distributed a white paper outlining “new rules” for emerging market private equity investment, citing the fact that emerging markets’ share of the total number of private equity deals more than doubled between 2005 and 2009, from 12 percent to 20 percent. The study also states that emerging market deal value nearly tripled during the period, from 8 percent to 21 percent.
The marked increase since 2005 is mirrored by the fact that 67 percent of limited partners surveyed by the Emerging Markets Private Equity Association (EMPEA) said they planned to increase their exposure to emerging markets in 2010 and 2011, the study says.
In addition, 26 of the world’s 30 largest private equity firms invested in emerging markets between 2005 and 2009, of which 18 now have local offices in emerging markets.
Furthermore, “winning firms” investing in emerging markets in the future, according to the study, will use business models that differ from those used in developed markets in the US and Europe. Firms will focus on minority rather than majority stakes and invest in companies focused on domestic rather than international markets.
Data for the white paper came primarily from the International Finance Corporation (IFC), drawing upon 176 private equity funds in emerging markets with vintage years after 2006. Funds included in the study came from 75 emerging market countries, with India, Brazil and China together accounting for roughly 24 percent of the data.