Attracted by rapidly growing emerging economies, private equity players are expected to build their portfolio by as much as 20% in the next two years, with India and China likely to corner the lion's share of these allocations, says a survey.
According to a global annual survey by Emerging Market Private Equity Association (EMPEA) and Coller Capital, private equity players expect the proportion of their PE allocations directed at emerging markets to rise to 16-20% in two years' time from the prevailing 11-15% level.
"Institutional investors facing escalating liabilities within the next 5-10 years will find the growth opportunities in emerging markets very compelling," EMPEA President and CEO Sarah Alexander said.
Alexander added, "while China and India still remain on top limited partners wish-lists, investors are also shifting their gazes to the less penetrated markets of Latin America and Southeast Asia."
Emerging PE markets in Asia would see the greatest expansion in commitments from existing investors in the next two years- 40% of limited partners plan increased exposure to China, 34% to India, and 36% to other emerging Asian PE markets, the report said.
Limited partners are those institutions or individuals that contribute capital to a private equity fund, while general partners are the top-ranking partners at a private equity firm and the firm managing the private equity fund.
The report mentioned political risk as a major deterrent to investing in Russia, the Middle East and North Africa (MENA) region and Sub-Saharan Africa, while high entry valuations were the biggest hurdle for new investors in India, China and Brazil.
Private equity investors have the highest return expectations for emerging Asia PE funds, with 78% PE investors expecting annual net returns of as much as 16% or more.
The report further notes that Brazil has "leapfrogged" China as the most attractive market for deal-making in the next 12 months and the nascent Asian PE markets are now perceived to be as attractive as China.
