Perspectives on Emerging Markets Private Equity: What Matters to LPs

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Perspectives on Emerging Markets Private
EquityWhat Matters to LPs Implications for
the Africa MarketPresented ToThe African
Venture Capital Association Roger S.
BerryNovember 7, 2006
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Significant improvement in returns The
Cambridge Associates Emerging Markets PE/VC index
has shown significant improvement over the last
three years from a very low base. Exit data from
Asia suggests 2006 will be another strong year.
There were 73 exits for the first half of 2006
(Asia ex Japan) of which 28 generated gross IRRs
above 75, and 14 above 150. (Source Asian
Private Equity Review).
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Converging with mainstream PE The performance
of recent vintage funds in emerging markets
brings the asset class to a level comparable with
US and European PE. At the same time many of the
largest US and European managers are now
investing in emerging markets, directly or
through partnerships. This development is both a
confirmation of the opportunity set in emerging
markets and a source of significant competition
for emerging markets managers.
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Rebound in fundraising On the back of return
improvements and increasing liquidity, emerging
markets fundraising has increased nearly ten fold
in three years to 9 of global total. The most
experienced managers are now raising funds IV and
V, allowing longer track records for LP review.
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Overfunded or more room to grow? The rapid
growth in fundraising is raising concerns that
some markets, particularly China and India, may
be overfunded. On a per GDP basis both are
increasing but still below the US. 2006
Investment activity seems to be keeping pace with
the increase in available capital. In, India,
for example, 76 investments totaling 2bn were
made in the second quarter of 2006 (Source
Venture Intelligence India)
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In 2003, Liberty Global was asked by a group of
leading global private equity investors to help
launch the Emerging Markets Private Equity
Association (EMPEA).
Teresa Barger Thomas Barry Michael Barth
Antonio Bonchristiano Woodrow Campbell
Ashish Dhawan Paul Fletcher Roger Leeds Mark
Jennings Jeffrey Leonard
Donald Roth Andre Roux George Siguler Pote
Videt Andrew Williams
Managing Director Sarah Alexander Chairman Rog
er Leeds
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With EMPEA, Liberty Global Partners has conducted
two survey of LP views on emerging markets
private equity. Key findings from the 2006 survey
include

• 65 of respondents expect to increase their
  commitments to emerging markets over the next
  five years, as a percent of total commitments
  (compared with 45 in 2004 EMPEA Survey).
• Those most likely to increase exposure are also
  currently the most active investors in emerging
  markets.
• While only 25 of respondents say returns from
  prior commitments had met or exceeded
  expectations, 74 say that past returns in these
  regions are not a good indicator of average
  future performance.

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Additional Survey Findings

• Asia is the region of greatest interest to
  respondents, followed by CEE/ Russia.
• Investors require a risk premium from emerging
  markets funds (see chart).

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Additional Key Survey Findings

• Greater interest in emerging markets funds is not
  correlated with lower return expectations from US
  funds.
• 83 of respondents agree or strongly agree that
  portfolio diversification is an important reason
  to consider emerging markets funds.
• The biggest constraints to further investment is
  uncertainty about accounting and corporate
  governance, followed by concerns that governments
  may not pursue sound economic policies.

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Liberty Global Partners provides research,
analysis, and capital raising advisory services
to private equity firms investing in emerging
markets. Formed in 2002, Liberty Global has
made significant contributions to emerging
markets private equity by helping to raise
hundreds of millions of dollars in LP commitments
and by playing a lead role in the creation of the
Emerging Markets Private Equity Association. To
our knowledge, we are the only placement firm
exclusively focused on emerging markets.
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