Emerging markets private equity soars, but little cash for Africa

Fund-raising for sub-Saharan African private equity funds was $1.056 billion in January to June 2011, down 5% from $1.11 bn in the first half of 2010. This includes the success of African manager Helios Investment Partners, who announced in June they had raised $900 million for Helios II fund. Total SSA fund-raising in 2010 was $1.5 bn, according to latest figures from the Emerging Markets Private Equity Association (www.empea.net). From market information, African Capital Markets News hears some Africa-focused funds struggled to raise capital.

However, there is a strong move into emerging markets private equity funds as managers hunt for returns, and as emerging markets investors turn to private equity. Total fund-raising for emerging markets funds for the first half of 2011 was $22.6 bn, according to EMPEA, more than double the activity of the first half of 2010. The level of fund raising for the first half is the highest since 2008, when $29 bn was raised in the first half for emerging markets funds.

In the first half of this year, 70% of funds were raised for China, India and Brazil, compared to 50% share in 2010, and $10.3 bn was raised for China funds, 45% of all capital raised. Yuan-denominated funds (56% by number of the Chinese funds) drew participation from Chinese investors including government agencies and contributed 40% of the capital raised. Brazil has two billion-dollar-plus funds that closed on $3bn in the first half and two more are raising $3bn in the current quarter. Some capital into 11 Latin American funds came from local institutions, including pension funds.

Sarah Alexander, President and CEO of EMPEA, said in a press announcement: “Western institutions are continuing to seek greater exposure to the world’s fastest-growing markets, and institutions in the emerging markets themselves are significantly ramping up their investment in the asset class. Fundraising activity in the first six months of 2011 reached almost full-year 2010 levels, and we estimate that fundraising for the full year could reach US$40 bn or more, which would exceed the 2006 total.

“Institutions such as pension funds realize they have to increase their exposure to alternative investments to yield the returns needed to meet their escalating liabilities over the next 5-10 years. Given the drubbing to their equities and fixed-income portfolios this summer, we anticipate even greater interest from institutional investors in private equity in emerging markets.”

The pace of funds making investments into private equity transactions is relatively steady. According to EMPEA, there were 431 deals valued at $14.1 bn in the 6 months to June, compared with 434 deals valued at $12.8 bn during the same period in 2010, and 856 investments totaling $28.8 bn across emerging markets in 2010. China and India together captured 68% of the total invested and 54% of the transactions. A total of $5.8 bn was invested into 136 China deals, accounting for 41% of the total in the first half (up from 19% in 2008) and $3.8 bn into 142 Indian deals.

In sub-Saharan Africa a total of 18 equity investments totaling $256m were completed during the first half of 2011, down from 25 transactions (totaling $186m) in the first half of 2010 and a full total of 48 transactions totaling $631m for the full year. EMPEA says that although activity is concentrated in larger and more mature private equity markets, investments took place across 54 countries in the first six months of 2011, including more nascent markets such as Honduras, Laos, Madagascar, Mongolia and Uruguay.

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