Industry Newsroom

Emerging Markets Hold US$48B in Stranded Capital

By Adam Le – 5 June 2017

There is more than a year’s worth of potential secondaries deal volume being held by emerging market managers who have failed to raise a successor fund and whose LPs may be seeking liquidity, according to industry association EMPEA.

At least $47.5 billion was raised in the “boom and recovery years” between 2006 and 2010 from such managers, the emerging markets private equity association wrote in its Alternative Paths to Liquidity brief for May. Emerging markets ‘boom years’ fundraising.

There “hasn’t been a real push from some of these managers to get exits”, Ryan Wagner, investment director at development finance institution CDC Group, noted in the brief. Some emerging markets managers did not have the ability to create value and drive exits, while in other cases management teams have either been “ineffective or [have] fallen apart”, he added. “In several situations, assets are impaired, the fund is in liquidation or the manager could not raise a subsequent fund and only a subset of the management team remains.”

Emerging Asia, China and India account for more than half of emerging markets funds raised where the manager has failed to raise a successor vehicle. China makes up almost half of such funds by value. GP-led processes, which can provide liquidity to LPs, are more pronounced in Asia than the rest of the world, according to the report.

Such deals accounted for more than half of last year’s deal volume in Asia, compared with around a quarter globally.

The Commonwealth of Independent States as well as the central and eastern Europe regions are most disproportionately affected in terms of managers not raising follow-on funds, EMPEA noted. Together they account for 17 percent of such capital – the second-biggest region after China – despite accounting for just 11 percent of total emerging markets fundraising over the period.