Private Equity’s Uneven Resolutions
The private equity association EMPEA lamented a 2013 “downward cycle” as investment and fundraising both declined to $25 billion and $35 billion respectively, but hailed beyond BRICS geographic diversification in its annual roundup especially in East Asia and Africa and Latin America. Almost 900 deals and 150 funds were completed despite “asset re-pricing and currency depreciation,” as 40 percent of transactions classified as venture capital, with the largest in Panama for online education. Southeast Asian volume was a post-crisis high above $2 billion, and China’s 90 investments in the last quarter were also a record. Russia and Turkey took half of Europe and CIS deal flow, and Tunisia and the UAE accounted for the same weight in the Middle East. Mexico and Sub-Sahara Africa likewise were at a 5-year peak, as the latter attracted $1.5 billion in capital, according to the group. Computer software and retail were popular sectors targeted by US venture houses led by Sequoia Capital. The big emerging economies still absorb two-thirds of activity, and Asia dominates by region outside China and India as Vietnam, Indonesia and Malaysia were lures. Brazil’s pace slackened as smaller destinations like Peru were targeted as the “next wave of growth,” the body commented. It added that the $90 billion in funds closed in 2011 and 2012 had yet to be fully deployed and may have contributed to last year’s slowdown. Tighter financing conditions extended at the same time for bank lending as reported by the IIF’s Q4 survey where the composite index stayed under 50 with marginal improvement particularly in Latin America. All regions had increased export credit demand with industrial world recovery, and loan standards were most stiffened in Asia. International fund availability rose slightly, but NPLs are expected to jump in 2014 according to that measure based on feedback from 150 banking executives.
Just one-tenth of respondents were from Sub-Sahara Africa, where after 2013’s record sovereign bond placement and double-digit share gains risk-aversion has arrived. The MSCI Kenya and Nigeria components are down and Ghana following a ratings demotion has tightened foreign exchange controls to defend the currency which matches the rand as the continent’s worst performer. Nigeria’s equity fund outflows were $60 million last year by EPFR’s count as its weighting in the frontier benchmark will hit 20 percent with Gulf market elevation to the main roster. Kenya intends to go ahead with a debut $2 billion Eurobond equal to one-third of reserves despite current account and fiscal deficits at 8 percent of GDP as the IMF considers a new precautionary facility. Banks have one-quarter of their assets in government bonds at 3-month 9 percent yields as annual 20 percent credit dwarfs 5 percent economic growth. Ghana intends to tap the global bond market again despite volatile cocoa and gold prices and heavy Chinese bilateral commercial obligations as major exchange listing Tullow Oil sags on parched production.
