India continues to be one of the most favourite markets for LPs (Limited Partners), according to a survey by a body comprising private equity investors in emerging markets.
Sixteen per cent of investors, which includes family offices, foundations, endowments, pension funds and other asset managers, in emerging markets have rated India as attractive after Brazil, says Emerging Market Private Equity Association (EMPEA).
The country is also the third-most favoured destination for GPs (General Partners) after China and Brazil.
Brazil has been rated slightly more attractive than India as a market for LPs with 18 per cent of the respondents rating it as the most attractive. A majority of limited partners are planning to increase their emerging market exposure by committing additional funds over the next five years.The additional fund deployment across emerging markets comes from the fact that LPs expect their emerging market commitments to perform well over the medium term.
LPs are anticipating annual net returns of more than 16 per cent over the next three-five years from their commitments to emerging market private equity funds. Almost 11 per cent of investors in private equity funds are planning significantly higher allocation to such markets. However, there are investors who want to focus more on developed markets and reduce allocations to emerging markets. This comprises 26 per cent of the LPs who participated in the survey.
One of the reasons why emerging markets are being touted as a viable alternative for private equity investors seeking returns is that the market economies are expected to still expand in 2009, whereas developed economies are shrinking. While they are not decoupled, experts say that these will be the first to come out of the global economic crisis.
Emerging market private equity hit a capital raising record in 2008 of $66.5 billion. The amount raised last year was up 12 per cent over the $59.1 billion raised in 2007. However, 2009 remains to be a tough year as capital at the hands of major LPs in the West has shrunk.
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One-third of the LPs who do not have emerging market exposure plan to commit fresh money to the GPs in the next two years.
They see these markets as somewhat riskier but still plan to increase the exposure. Hence, they are demanding a higher risk premium for emerging market PE investments relative to developed market buyouts.