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This edition of EMPEA’s Global Limited Partners Survey marks our 10th year of analyzing limited partners’ views on the private equity asset class in emerging markets. From the 22 LPs participating in the inaugural 2004 survey to the 106 LPs responding to this year’s questionnaire, the study demonstrates the growth of emerging markets private equity over the past decade and continues to reveal how LP sentiment on EM PE has evolved.
The findings of this survey are based on data collected from 106 LPs headquartered across 30 countries and representing a diverse set of investors, including public and corporate pension funds, insurance companies, banks, asset managers, sovereign wealth funds, endowments, foundations, family offices, development finance institutions and funds of funds. The institutions taking part in this survey collectively represent global private equity assets under management of more than US$680 billion.
Key findings from the 2014 Global Limited Partners Survey include:
- 41% of LPs* plan to increase the percentage of their total PE allocation targeted at emerging markets over the next two years, higher than the 32% reporting similar intentions in the 2013 survey.
- 54% of LPs* expect to increase the dollar value of new commitments to EM PE funds over the next two years—a smaller percentage than in 2012 (75%) and in 2013 (60%). A bulk of LPs attribute the increase to their growing global PE portfolios, including the portion directed at emerging markets.
- 67% of institutional investors view the risk profile of private equity in emerging markets as unchanged over the past year, suggesting that LPs remain relatively unfazed by recent volatility.
- 78% of respondents assess their EM PE portfolio performance as having met or exceeded expectations for the asset class, compared with 22% who consider their EM PE portfolios as having underperformed.
- 57% of LPs expect net returns of 16% or more from their EM PE portfolios versus 38% of LPs who expect similar results from their developed market counterparts. Compared to last year’s survey, this finding marks a downward adjustment for emerging markets and corresponds to more bullish expectations for developed markets.
- China and Latin America (ex. Brazil) funds have the highest return expectations among LPs, with 61% and 56% of respondents, respectively, expecting net returns of 16% or higher for 2013-vintage vehicles.
- Non-BRIC markets retain the top three spots as the most attractive markets for GP investment for the second year in a row. Latin America (ex. Brazil) regains the lead after it was displaced by Sub-Saharan Africa in last year’s survey. Southeast Asia and Sub- Saharan Africa round out the top three.
- Southeast Asia is poised to see the greatest influx of new investors over the next two years, while 32% of LPs already active in the region and 31% already active in Latin America (ex. Brazil), plan to expand their current commitments in those markets.
- Political risk remains the primary deterrent for LPs to begin investing in certain emerging markets, including Russia/CIS, Turkey and the Middle East and North Africa (MENA). For Southeast Asia, Latin America (ex. Brazil) and Sub-Saharan Africa, LPs express concern over the limited number of established fund managers.
- Growth capital fund strategies continue to remain a focus for investors, with 50% of LPs indicating plans to expand EM commitments to these vehicles over the next two years, followed by 36% of respondents expecting to increase commitments to buyout funds.
*Exludes development finance institutions and EM-focused funds of funds.