Why timing matters in emerging markets

Vehicles reached peak TVPI in their eighth year after launch, compared with the 10th year for developed markets, according to a report from eFront.

Emerging markets leveraged buyout funds do not need to hold assets as long as their developed markets peers to maximise value, according to research from eFront.

Funds focusing on the strategy reached peak total-value-to-paid-in multiple in the eighth year after launch, the private equity software provider noted in its Frontline Research Paper. Developed markets funds did not reach peak value until their tenth year of existence.

“LBO fund managers in developed markets seem to be able to maximise the performance during the harvesting period,” the report noted. Such disparity could be a result of the greater room for growth in emerging markets businesses in comparison to more established targets.

The increased potential to add value in emerging markets is also beneficial for venture capital returns. These vehicles typically outperformed their developed markets peers across the life of the fund, due in part to reduced market saturation and decreased competition in the emerging markets.

Emerging markets were defined as Eastern and Central Europe, Middle East and Africa, Latin America, China, India, Indonesia and South Korea. Developed markets comprised Western Europe, North America, Japan, Singapore and Australia.

The data analysed only fully-realised vintages from 2001-13.