Templeton exits Fund II at 2.1x net return

The global asset manager has divested all investments from its second emerging markets vehicle, though it had to contend with a difficult exit market.

The emerging markets private equity arm of Franklin Templeton has exited all investments from its second vehicle, which was heavily weighted toward Asia, according to the firm. 

The $132 million vehicle, launched in 2005, generated a net internal rate of return of 34.3 percent and a net return multiple of 2.1x, a company statement said. TSEMF II made and exited its 12 investments within eight years of the fund’s initial close.

“Private equity will continue to play an important role within our group as we continue to see opportunities for such investments across emerging markets,” Mark Mobius, executive chairman of Templeton’s emerging markets group said in a statement. “We are very pleased with the success of our second private equity fund, as it validates our investment strategy and sets the direction for our future endeavours in the alternative asset space.”

Templeton’s investments continue to span across emerging markets including China, India, South Korea, as well as Russia and Central and Eastern Europe.

About 70 percent of the portfolio companies in Fund II were located in Asia. 

Disclosed exits from Fund II included China High Speed Transmissions, China Gas Holdings and Singapore-listed Celestial Nutrifoods, Tek Khoan, head of private equity at Templeton said, although could not disclose individual exit information. 

During 2012, the firm exited at least three of the fund's investments, although a difficult IPO market forced the firm to use pre-specified protective provisions to sell some companies when there was no exit mechanism available, Khoan explained. For example, the firm used a put option for its sale of India-based portfolio company HPL Additives, divesting its shares back to the company's entrepreneurs. 

“In many of our investments wherever possible we seek to have provisions that allow us to exit, whether it is in the form of the deal structure for example having a convertible bond, or having a put option back to the company or major shareholders just in case the public markets are unfavourable for exit,” Khoan said in an interview. 

Nevertheless, Templeton remains committed to its up to 70 percent allocation to Asia Pacific in its emerging market vehicles. Last month, Templeton made the first investment from its fourth emerging markets vehicle, acquiring a 6.3 percent stake in China-based Tongda Group.

Fund IV was launched earlier this year targeting $300 million, with two-thirds of the fund allocated to Asia.