Private equity investors buck trend, raise record $63.5 billion

Private equity investors buck trend, raise record $63.5 billion

Singapore: Private equity investors raised a record $63.5 billion (Rs3 trillion) in 2008 to buy companies in the developing world, especially in Asia, even as the pace of fund-raisings slowed amid the global financial crisis.

Private equity funds focusing on emerging markets raised 7% more money this year, compared with the year-on-year increase of 78% in 2007, according to the Washington-based Emerging Markets Private Equity Association.

“We’re seeing a levelling off in growth after several years of very dramatic increases, but have yet to see a decrease in capital being raised," Sarah Alexander, president of the industry group, said in an email.

Private equity investors have pushed into new markets as credit dried up after the US subprime mortgage market collapsed, slowing deal-making in the US and Europe. Announced private equity deals, excluding aborted transactions, shrank to $207 billion worldwide this year, less than a third of the $674 billion in 2007, according to data compiled by Bloomberg.

The funds focusing on Asia, excluding Australia, New Zealand and Japan, have raised $37.1 billion since 1 January, accounting for 58% of total fund-raising in emerging markets, according to the industry group, whose members include private equity fund managers and institutional investors.

Investors putting money in emerging-market funds still have capital to commit in 2009, said Alexander. Investors see higher growth potential in developing markets, she added.

Funds that have come to the market in the last six months, particularly first-timers, will likely face a much more challenging fund-raising environment amid the worst financial turmoil since the Great Depression, Alexander said.

It’s reasonable to assume that the fund-raising cycle will grow longer—potentially taking 18 months or more to achieve a final close on a fund, she said.

Leopard Capital Ltd, which is targeting a $100 million fund to invest in Cambodia by 31 March, has raised only about a quarter of the amount this year.

Next year, the world’s investment pie will be smaller and investors will be more discriminating on what fund strategies they back, Phnom Penh-based Douglas Clayton said.

Many of the funds that managed to raise money in the second half of the year have already drawn commitments from investors for some time as they have been attempting to raise capital for at least a year, Alexander said.

Dhaka-based Asian Tiger Capital Partners, which aims to raise a $50 million Bangladesh-focused private equity fund, and Frontier Investment and Development Partners, which is seeking to raise $250 million to invest in Cambodia, postponed their plans till next year.

Morgan Stanley Capital International’s Emerging Markets Index, a benchmark for equities in 24 developing nations, tumbled 53% this year.

Many of the first-time funds in emerging markets have sprung up in India and China, the world’s two fastest growing major economies, and are seeking capital from local institutional investors that have been less severely affected by the global equity rout, Alexander said.

Actis Capital Llp., based in London, raised $2.9 billion for an emerging markets private equity fund, which will allocate $1 billion to India and $600 million to China. New York-based Citigroup Inc. said in May it raised $500 million to invest in roads, ports and utilities in India.