Over US$432 Billion Raised for Private Investment in Developing Economies from 2006 to Q3 2015,According to EMPEA, the Global Industry Association for Private Capital in Emerging Markets

EMPEA reported today that fund managers have raised over US$432 billion via long-term, private direct investment funds, backed by institutional investors, across three asset classes—private equity, private infrastructure and real assets and private credit, collectively “private capital”—for the emerging markets (“EM”) of Africa, Asia, Europe, Latin America and the Middle East from 2006 to Q3 2015.

With the release of its Q3 2015 Industry Statistics, EMPEA, the global industry association for private capital in emerging markets, also announced that it has expanded its data coverage to include private infrastructure and real assets and private credit funds, in addition to its previously reported private equity data. The organization’s fundraising dataset has been historically updated to provide comparative statistics back to 2006, the first year it began tracking private equity fundraising, while the investment dataset has been updated back to 2008, the first year EMPEA began tracking private equity investment activity. The expanded coverage follows the same rigorous methodology across all EM regions for which the global association is known. The entire dataset will now better serve the industry and EMPEA’s mission by providing the most comprehensive picture of long-term private capital in developing economies.

Robert van Zwieten, President & CEO of EMPEA, commented, “The US$432+ billion raised for private funds is a milestone for emerging economies and a significant achievement for fund managers putting capital to work in places most in need of entrepreneurial funding, increased employment and sustainable development. However, fundraising and investment activity in emerging markets continues to comprise a relatively low share of the global total compared to the composition of GDP, strongly suggesting many more opportunities remain. These growing markets still need substantial additional private investment, and there’s a lot of money to be made by discerning investors who are bridging these financing gaps.”

While more than US$224 billion has been deployed by private funds in emerging markets since 2008, private capital penetration rates, or disclosed capital invested as a percentage of national GDPs, remain relatively low in developing economies in comparison to developed market equivalents. For example, China’s private capital investment represented only 0.15% of its GDP in 2014, while Brazil’s private capital penetration rate was 0.13% and South Africa’s was 0.12%. By comparison, private capital investment was 1.44% of GDP in the United States, 1.58% in the United Kingdom and 0.73% in Israel over the same period. Moreover, though EM economies collectively comprise approximately 62%1 of the world’s 2015 GDP based on purchasing-power-parity, capital raised via private funds for these economies has represented only 13% of the global private capital total raised from 2006 through Q3 2015.

Private Equity

The majority of private capital raised from 2006 to Q3 2015 has been via private equity funds, which accounted for US$367 billion, or 85%, of private capital raised for emerging markets over that time period, while private equity investment accounted for US$199 billion, or 88% of capital invested from 2008 to Q3 2015. Growth capital deals have attracted the majority of capital deployed over that time period, though recent trends have shown a surge in EM venture capital (VC) activity—which is included in EMPEA’s private equity coverage—in both absolute and relative terms in recent years, most notably in China and India, mirroring the global trend of increased activity in this space. VC deal count and capital invested in 2015 are on pace to reach a record high, with India-based taxi booking mobile application ANI Technologies (Ola) representing the largest disclosed EM VC deal in the first three quarters of 2015. Beyond growth capital and venture capital, fund managers have also deployed capital via buyouts, presenting investors with a more diverse spectrum of opportunities to access in emerging markets. Moreover, from 2014 to Q3 2015, ten emerging markets-focused buyout funds held a final close in excess of US$1 billion—led by RRJ Capital Master Fund III’s US$4.5 billion September 2015 final close—representing a significant amount of capital available for firms to deploy via this strategy over the next few years.

Infrastructure and Real Assets

Fund managers have raised US$41 billion for EM-focused private infrastructure and real assets funds since 2006, or 9% of total capital raised for all private funds focused on emerging markets over this time period. Driven by large infrastructure vehicles raised for Latin America and Emerging Asia, such as Patria Investimentos’ US$1.7 billion P2 Brasil Private Infrastructure Fund III and Equis Funds Group’s US$1 billion second fund, infrastructure and real assets fundraising reached US$4.9 billion through the first three quarters of the 2015 and is on pace to become the highest annual total recorded by EMPEA. GPs investing in infrastructure have not only raised significant capital, but also put it to work in a diverse array of geographies and via a multitude of deal strategies. Private fund managers have deployed US$21 billion in disclosed capital in infrastructure and real assets companies and platforms and completed 375 private investments in the space since 2008. Deals such as CVC Capital Partners’ US$372 million privatization of Poland-based electric utility PKP Energetyka and Actis’s US$220 million “buy and build” commitment to South Africa-based development platform Lekela Power, both recorded in 2015, exemplify this strategic and geographic variety.

Jeff Schlapinski, Manager of Research at EMPEA, noted, “Despite the current challenges faced by investors in emerging markets, including slowing growth, currency depreciation and financial market volatility, the need for investment in infrastructure across emerging economies is vast. Fund managers investing in infrastructure have the potential to deliver compelling risk-adjusted returns for limited partners given the strong fundamentals underpinning individual projects and companies in sectors like power.” The launch of EMPEA’s expanded infrastructure coverage coincides with the release of its Special Report: Private Investing in the Power Sector in Emerging Markets, which explores how burgeoning demand for electricity in developing economies presents an opportunity for investors to earn attractive returns while also spurring economic growth and development.

Private Credit

Though capital raised via private credit funds remains a small minority of the total raised for private funds in emerging markets, 112 EM-focused private credit funds have raised US$25 billion since 2006.

These funds invest across a range of strategies, including direct lending, mezzanine financing, distressed debt, venture debt and special situations. With bank loans typically difficult to obtain for small and mid-size businesses in developing economies, particularly following the global financial crisis, debt financing via private funds can play a crucial role in providing more long-term capital necessary for entrepreneurs to grow their businesses, without having to part with equity in their companies. While the private credit asset class in emerging markets is still relatively small, institutional investors are increasingly aware of the potential for this asset class to generate attractive returns. In EMPEA’s 2015 Global Limited Partners Survey, mezzanine-focused funds were ranked second to growth capital-focused funds as the strategy that the highest percentage of investors plan to increase their commitment levels to over the next two years in emerging markets. In fact, some of the most active managers in this space held closes on private credit-focused vehicles in the first three quarters of 2015, including Shoreline Capital Management, Vantage Capital and Cordiant Capital.

David Creighton, Senior Advisor at EMPEA and Chair of EMPEA’s Private Credit Council, commented, “Private credit is playing an increasingly important role in emerging markets by providing much needed capital for growing businesses. It also provides institutional investors a way to access these markets with tailored risk mitigations and upside potential. By expanding data coverage into private credit, EMPEA can better serve investors seeking these types of opportunities and emerging market companies facing acute financing gaps.”