Private Equity’s Middling Middle Markets
The Emerging Market Private Equity Association released 2011 fund-raising and deal-making totals showing continued BRIC and large vehicle concentration, with smaller destinations and capital size still overlooked. Its slice of the global new commitment pool was 15 percent at almost $40 billion, a multi-year high, with LPs seeking long-term exposure that may be confined through listed shares. Asia and specifically China has drawn three-fifths of the amount, with renimbi-denominated offerings the majority from dedicated sponsors prompting over $15 billion in allocation. India took in almost $3 billion and penetration at 0.3 percent of GDP is double China’s. Brazil funds were all mobilized locally and represented near 20 percent of the aggregate at $7 billion. Each launch was $1 billion-plus, reflecting a preference for larger deals which extends to the broader universe, where average GP scope was twice 2010’s at $300 million while the number of entrants fell 20 percent. Median investment size was $15 million, although Brazil’s was triple that figure. Russia/CIS and MENA were still stifled by regional crises with respective tallies of $135 million and $425 million. Sub-Sahara Africa’s total slipped from $1.5 billion the previous year, with South Africa absorbing about one-third. The US and Europe remained the world leaders, with the former’s $95 billion in inflows far outpacing other developed markets. The trade group argues that Brazil and China are not at “saturation point” with unmet mid-market needs, and recalls the multi-regional push accompanying the $65 billion collected pre-crisis in 2008 that could reactivate over the medium-term.
Asia-sourcing and demand will continue to drive country and company stories in the coming months as the hard versus soft-landing debate coincides with Beijing’s party leadership transition. India may allow more favorable tax treatment for authorized venture capital operations in the latest budget, and Korea after spurning foreign involvement with controversies over bank and high-tech acquisitions following its late 1990s crash is revisiting the position so Seoul can claim world financial center status. Frontier backers like Franklin Templeton and Leopard Capital are promoting potential in Indochina and elsewhere, with Cambodia, which carries a B sovereign rating, joining Laos in stock exchange opening as an exit. This ignored swathe offers faster 5-plus percent GDP growth and Bangladesh, Sri Lanka and Vietnam are mid-size weightings on the MSCI benchmark index. To beckon foreign investors Dhaka has removed capital gains tax, and development lenders have a big portfolio of reconstruction projects for Sri Lanka’s war-torn north. Nepal and Papua New Guinea after civil strife feature energy and mining endowments and working equity markets that may pass private fancy.
