April 1, 2012
Interviewed by: David Snow
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Emerging Markets Surge in 2011

Private equity fundraising around the world remains tough, but emerging markets fundraising had a stellar year in 2011, according to the Emerging Markets Private Equity Association (see statistics here).

Privcap CEO David Snow talked to three emerging-markets experts about what these figures mean for the future of private equity in the emerging markets. With David Marchick of The Carlyle Group, Maureen Downey of Pantheone Ventures, and Peter Furci of Debevoise & Plimpton.

Private equity fundraising around the world remains tough, but emerging markets fundraising had a stellar year in 2011, according to the Emerging Markets Private Equity Association (see statistics here).

Privcap CEO David Snow talked to three emerging-markets experts about what these figures mean for the future of private equity in the emerging markets. With David Marchick of The Carlyle Group, Maureen Downey of Pantheone Ventures, and Peter Furci of Debevoise & Plimpton.

David Snow, Privcap: Thank you all for being on Privcap today. We have some interesting fundraising numbers in from the Emerging Markets Private Equity Association (EMPEA) all about total fundraising numbers from emerging markets-focused funds.  I’d like to tell you what the statistics are and I’m interested in your analysis of these statistics.

In 2011, $38.5 billion in emerging markets’ funds were raised.  This is up 64% from the $23.5 billion raised in 2010. So, this is up significantly.  Does this surprise anyone?

Maureen Downey, Pantheon Ventures: No, this is not a surprise.  I think anyone who has been traveling in these emerging market regions will see the dramatic increase in the LPs looking for opportunities.  I think especially given the fact that growth prospects in Europe and in the US are low to marginal. I think that this doesn’t surprise me at all.

Snow: David, what is your analysis of higher fund raising numbers for emerging markets specifically?

David Marchick, The Carlyle Group: I agree with Maureen.  First of all, fundraising is still coming out from the trough, from the recession so you’re seeing growth in general.  But there’s growing allocations to emerging markets because the largest institutional investors tend to be under allocated and they’re catching up.

Peter Furci, Debevoise & Plimpton: It still reflects historically low penetration of private equity in those markets relative to the developed markets.

Snow: Would anyone like to guess which region of the world had the biggest increase in fundraising year over year?

Downey: Latin America.

Snow: Yes, you were right Maureen and specifically Brazil, which went from a 5% of the overall fundraising total to 18%, which looks like the largest jump.  What is it about Brazil that is so attractive to investors right now?

Downey: There are a couple of managers who have longer track records, so I think that always gives people comfort.  I think also there were sizable funds raised by half a dozen managers and if you broke down that sum, you’d find that the majority of them are from 5-6 managers.  So I think that you need to put that in context, too.

Marchick: I would just add that Brazil is unique among developing countries because it’s not only an attractive, stable market with very strong government policies, but it’s also unusual in that you can pursue control transactions in Brazil and you can also use leverage.  Whereas in China or India, you are primarily pursuing minority, non-levered transactions and in Brazil, along with Turkey, you can actually pursue levered control transactions.

Snow: Now a bit of a crystal ball questions and then we can end there.  Do any of your predict that  emerging markets private equity funds will increase at a greater pace than the general, global private equity funds if indeed we think that private equity fundraising in general will increase in the coming years?  Will emerging markets continue to be a bigger and bigger piece of that pie?

Furci: I think yes largely because their percentage of overall fundraising is still not commensurate with the degree to which they contribute to world growth, the overall world economy.  So I think that’s absolutely right.

Downey: PE penetration in these economies as a percentage of GDP is far lower than what it is in the developed markets and it’s going to have to converge therefore there will be more growth. But also I think we’re going to go through the process, certainly in Europe, but also to some extent, depending on the sector, in the US of consolidation.  There will be, frankly, less money raised.  There will be fewer GPs and I think as a percentage given that the emerging markets are developing that will also accentuate the trend.

Marchick:  I agree.  I think there is going to be further institutionalization, some fallout.  There have been a lot of new teams and new funds developed without a long track record and I think there is going to be consolidation.

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