• The majority of LPs (nearly 60%) expect the dollar value of their EM PE commitments to increase over the next two years.
• LPs continue to believe that private equity in emerging markets will outperform developed markets, with 61% of institutional investors anticipating net returns of 16% or more from their EM PE funds versus 27% who expect similar results from their developed market counterparts.
• For the first time in the Survey’s history, none of the BRIC markets broke the top three most attractive markets for investment; Sub-Saharan Africa has emerged as the leader, followed by Southeast Asia and Latin America excluding Brazil.

Washington, D.C. – Global limited partners (“LPs”) in search of the next wave of growth are evaluating their emerging market exposure and increasingly seeking investment opportunities in less-penetrated markets. The Emerging Markets Private Equity Association (“EMPEA”)’s latest survey of institutional investors reveals that Sub-Saharan Africa, Southeast Asia and Latin America excluding Brazil are poised to see the greatest increase in new private equity commitments across the emerging markets over the next two years, edging out Brazil, China and India as the most attractive destinations for dealmaking.

While the majority of investors expect the dollar value of their emerging markets private equity (“EM PE”) commitments to increase in the near term, a greater percentage of respondents expect to maintain their current level of exposure to the asset class in comparison to last year (36% versus 17%), suggesting that commitments are likely to grow at a slower overall pace as many institutional investors approach their allocation targets. Furthermore, return expectations for most emerging markets have dampened slightly year-on-year, but remain highest for Southeast Asia and Sub-Saharan Africa, where 68% and 60% of LPs anticipate net returns of 16% or more from funds focused on these regions, respectively.

For the first time in the Survey’s nine-year history, none of the BRIC markets broke the top three most attractive markets for GP investment: Sub-Saharan Africa took the lead spot, a significant jump from its 5th place ranking in last year’s Survey, followed by Southeast Asia and Latin America excluding Brazil. Perceptions on market attractiveness are likely to translate into actual commitments. Nearly 54% of LPs plan to begin or expand commitments in Sub-Saharan Africa, 49% in Southeast Asia and 46% in Latin America excluding Brazil. Sub-Saharan Africa is poised to see the largest influx of new investors, followed by Turkey and Southeast Asia.

Growing LP interest in a new tier of emerging markets is reflected in EMPEA’s recent 2012 year-end statistics on EM PE activity. Private equity funds completed 297 deals in non-BRIC markets last year, a 16% increase over 2011 and the highest number to date.

“As the results from this year’s LP Survey indicate, a growing number of limited partners are now further along in executing their private equity strategies in emerging markets. While many were in the early stages of building their emerging market portfolios just a few years prior, aggressively increasing their allocations to the asset class and funneling commitments to the BRIC markets, signs that LPs are slowing the pace of their commitments and diversifying beyond the BRICs suggest a maturation of portfolios,” said Nadiya Satyamurthy, Senior Director at EMPEA and editor of this year’s study. “We seem to be entering the next stage of growth for the asset class as track records begin to develop across Sub-Saharan Africa, Southeast Asia and parts of Latin America.”

In reference to the increased investor interest in Sub-Saharan Africa, Southeast Asia and Latin America excluding Brazil, one institutional investor participating in the Survey commented, “These markets are very attractive because of the growth and greater pool of managerial talent, the development of local capital markets, and the ability to build on lessons learned.”

The study is available to the public here. EMPEA’s EM PE fundraising and investment statistics are available at EMPEA.org and now accessible via the Emerging Markets Private Equity Data Dashboards, an online interactive platform created in partnership with enterprise application software developer SAP.

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About the Global Limited Partners Survey:

The findings of this study are based on data collected from 112 LPs from over 30 countries, representing a diverse mix of public and corporate pension funds, insurance companies, sovereign wealth funds, banks, asset managers, endowments, foundations, family offices, development finance institutions, multilateral organizations and funds of funds. These institutional investors collectively represent disclosed global private equity assets under management of nearly US$430 billion and undrawn commitments of over US$180 billion.

About GPCA:

The Global Private Capital Association, which was founded as the Emerging Markets Private Equity Association (EMPEA) in 2004, is a non-profit, independent membership organization representing private capital investors who manage more than USD2t in assets across Asia, Latin America, Africa, Central & Eastern Europe and the Middle East. United by a long-term investment approach, our members are fund and institutional investors including private equity, growth equity, venture capital, credit, pension plans and sovereign wealth funds, among others.