Sarah Alexander

1
Developments in Emerging Markets Private Equity
The 2005 Landscape

• Sarah Alexander
• Emerging Markets Private Equity Association
• Presentation to the 5th African Venture Capital
  Conference
• Mombasa, Kenya
• November 6-9, 2005
• www.empea.net

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Table of Contents

• EMPEA Overview
• Historical Landscape
• Current Climate
• Expected Future Trends

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I. EMPEA Overview

• What is EMPEA?
• A broad-based membership organization founded in
  2004 that serves private equity and venture
  capital firms, fund investors and service
  providers in the emerging markets of Africa,
  Asia, Eastern Europe, Latin America and the
  Middle East
• EMPEAs Mission
• To strengthen the performance of private equity
  investing in emerging markets by helping private
  equity firms, limited partners and other
  stakeholders address industry challenges
• EMPEAs Programs
• Programs bring together industry players to
  address common problems and highlight industry
  opportunities, collaborating with national and
  regional venture capital associations.

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EMPEA Membership
First-year membership totals 83 firms operating
throughout emerging market countries.
Charter Members Abraaj Capital
Limited Actis AIG Capital Partners, Inc.Asian
Development Bank Avenue Capital Group Barbosa,
Müssnich AragãoBaring Private Equity Asia
Limited Baring Vostok Capital Partners CDC Group
plc ChrysCapital Clearwater Capital
Partners Clifford Chance
Debevoise Plimpton LLP DEG Delta Private
Equity PartnersEFG-Hermes Private
Equity Emerging Markets Partnership Ethos Private
Equity Ltd European Investment Bank Evolvence
CapitalFMO- Netherlands Development
CompanyGlobal Environment Fund GP
Investimentos Hamilton Lane
ICICI Venture Funds Management Co. Ltd
International Finance Corporation Luxembourg
Government Norton Rose SHUAA PartnersSigmaBleyze
r Siguler Guff Company LLC SVG Advisers
Limited Swiss State Secretariat for Economic
Affairs The Carlyle GroupWarburg Pincus
International LLC Zephyr Management, LP
Members Acap Partners African Capital
Alliance Alfa Capital Partners Aureos Advisers
Limited BPE InvestimentosBrait South Africa
Limited Capital International Capital Z
Investment Partners Caribbean Basin InvestorsCVC
International Conduit Capital Partners
LLC Cordiant Euroventures Ukraine Fund FIR
CAPITAL Partners Ltda.
LP Members Adams Street Partners Ltd. Bear
Stearns Asset Management Coller Capital OPIC Paul
Capital Partners PCG International Samba
Financial Group
TMG Capital Partners LtdTuninvest Finance
Group Votorantim Novos NegociosWalden
InternationalWestern NIS Enterprise Fund
Westmount Pacific LLC
Global Horizon Fund GVFL Limited IDFC Asset
Management Co. Jahangir Siddiqui Group Lombard
InvestmentsMadagascar Development
Partners Mekong Capital, Ltd Navis Capital
Partners Limited Poteza Partners Rio Bravo
Investments Ltd Romanian-American Enterprise
FundSmall Enterprise Assistance Funds Stratus
CorporationThousand Hill Ventures
Associate Members Barnellan Equity Advice
LtdCampbell Lutyens Co Liberty Global
Partners OMelveny Myers LLP Smyth Trade Credit
LLC Technoserve
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Board of Directors

• Teresa Barger
• International Finance Corporation
• Thomas Barry
• Zephyr Management, L.P.
• Michael Barth
• Former CEO, FMO (Netherlands)
• Antonio Bonchristiano
• GP Investimentos, Brazil
• Woodrow Campbell
• Debevoise Plimpton, LLP
• Ashish Dhawan
• ChrysCapital
• Paul Fletcher

Roger Leeds - Chairman Johns Hopkins
University/SAIS H. Jeffrey Leonard Global
Environment Fund Donald Roth Emerging Markets
Partnership Andre Roux Ethos Private Equity Ltd.
George Siguler Siguler Guff Company,
LLC Pote Videt Private Equity (Thailand) Co., a
subsidiary of Lombard Andrew Williams SVG
Advisors Limited
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International Advisory Board
David Baylis Norton Rose Christopher K.B.
Brotchie Senior Advisor, Baring Vostok, Asia,
India Funds Michael Calvey Baring Vostok
Capital Partners Patricia Cloherty Delta
Private Equity Partners Yasser El
Mallawany EFG-Hermes Private Equity Cynthia
Hostetler Overseas Private Investment Corporation
(OPIC) Richard Laing CDC Group Plc Josh
Lerner Harvard Business School Dennis
Lockhart Board Chairman, Small Enterprise
Assistance Fund
Thomas Mack McLarty Kissinger McLarty
Associates / The Carlyle Group Steven
Quamme Milestone Merchant Partners David
Rubenstein The Carlyle Group Everett Santos
Founder, Latin American Venture Capital
Association James Seymour Commonfund
Capital Robert Stillman Milbridge Capital
Management, LLC Lip Bu Tan Walden
International Paul Tierney Chairman,
Technoserve, Inc.
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Why EMPEA?

• Effective collaboration and regular interaction
  among industry players can strengthen performance
  and increase investment flows.
• EMPEA surveys confirm critical need to enhance
  credibility of the asset class and improve the PE
  information flow to fund managers, prospective
  investors, local VC associations, governments and
  others
• Demystify markets for prospective new investors
• Provide data and analysis on industry trends
• Showcase countries
• Disseminate success stories
• Analyze key issues
• Educate government regulators
• Industry participants seek more effective
  networking opportunities with fund managers,
  potential LPs, service providers and the DFIs
• Meet prospective investors
• Share best practices
• Learn about industry trends and issues

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EMPEAs Programs
Current and planned programs are shaped and
prioritized based on input from members, as well
as collaboration with national and regional VC
and PE associations. Current programs include

• Analyze, compile and disseminate relevant
  information and data about PE in emerging markets
  
• Quarterly newsletter on trends, success stories,
  best practices, member news, benchmarking data
• Website - the leading global resource for
  on-line information on the asset class.
• Evaluation of industry standards
• Conduct applied research
• Best practices
• Surveys of LP Attitudes toward emerging markets
  PE
• Database of funds active in EM, exits,
  fundraising
• Facilitate networking among fund managers,
  investors and others by organizing conferences
  and seminars on key topics of interest
• Every May in Washington, D.C., in conjunction
  with IFC
• December 13-14, 2005 in London

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II. The Historical Landscape

• Emerging Markets Private Equity is a relatively
  immature industry
• 10 years, 100 billion, Asia-centric
• Not monolithic regional and country variation
• 1990s Vintage Funds
• Modeled on U.S.
• Strong assumption of exits through IPOs
• Minority stakes and/or investments in family
  owned businesses
• Often first time, inexperienced fund managers
• Weak corporate governance at fund level
• The result disappointing performance
• Exogenous shocks closed off IPO markets
• Minority positions difficult to sell

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Historically, Comparatively Poor Returns
Comparative End-to-End Returns by Region 1 As of
December 31, 2004
1Cambridge Associates LLC Proprietary Index
pooled end to end returns, net of fees, expenses
and carried interest
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III. Current Climate
Renewed Investor Interest

• An EMPEA Survey conducted in March 2004,
  indicated that 45 of LPs surveyed planned to
  increase commitments to emerging markets
• Do you expect your commitments to emerging
  markets private equity funds to be higher, lower
  or the same in 5 years?

• March 2004. Survey conducted for EMPEA by
  Liberty Global Partners.

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What has Changed?

• Compelling macro-economic trends in China, India
• Globalization of the PE industry
• Portfolio companies need access to emerging
  markets
• Leading US/Europe funds allocating to these
  markets from existing funds
• Increasing competition in the US/Europe,
  narrowing return expectations
• Seasoned domestic fund managers track records
  can be analyzed
• Fund managers more hands-on
• Improved regulatory/legal frameworks in some
  markets
• Stronger minority shareholder rights
• Greater acceptance of importance of corporate
  governance
• Investments made with a more realistic eye toward
  exits
• Trade sales
• Exit environment and returns are improving

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Compelling Macroeconomic Trends
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Strengthening of Corporate Governance
Source Corporate Governance in Asia Overview
Trends. Asian Corporate Governance Association,
ACGA, Ltd 2005

• Asia - since 1999, 11 countries have issued
  regulations requiring independent directors, 8
  countries have required
• audit committees
• Latin America Brazil introduced the Novo
  Mercado, with more rigorous listing requirements
  and minority
• shareholder protection

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Improved Exit Prospects

• Jan-Sept. 2005
• Africa and Middle East 500m v. 2.5 b
• Latin America 720 mm v. 660m 2004
• CEE 500 mm v. est 400 mm 2004
• Asia 9.25 b v. 5.8 b in 2004.

Source EMPEA, Liberty Global, Asia Private
Equity Reviews, VELA, LAVCA, EVCA estimates
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Improving Returns
Comparative End-to-End Returns by Region 1 As of
December 31, 2004
1Cambridge Associates LLC Proprietary Index
pooled end to end returns, net of fees, expenses
and carried interest
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Leading to Increase in Fundraising
Emerging Markets Private Equity Fundraising
Snapshot, September 2005
US Billion
Source EMPEA, Liberty Global Partners
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Increase in Fundraising
Emerging Markets Private Equity Fundraising
Snapshot, September 2005
Source EMPEA, Liberty Global Partners Estimates
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IV. Expected Future Trends

• Expect a larger annual percentage to flow to
  China and India
• Through 2004, India and China accounted for an
  estimated 22 of PE investments in emerging
  markets (1)
• Beyond the BRICs
• Non-BRIC investments have in some instances
  outperformed over the last 10-15 years, though
  this may not be indicative of recent performance
  in these markets
• Gross returns (1) through 2004 from all
  investments in
• Russia 14
• India 17
• China 3
• South Africa 11
• Korea 16
• Czech Republic 28.5

1 Source Cambridge Associates, Proprietary
Database. Includes EM investments made by EM and
non-EM funds in CA Database.
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Expected Future Trends

• Emergence of Secondaries and Fund of Funds for EM
• Greater demand from LPs for
• Strong corporate governance
• Best practices in fund management (reporting,
  valuation)
• Demonstrated track records
• Reliable regulatory and legal frameworks

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Thank You!
Sarah Alexander Executive Director Emerging
Markets Private Equity Association P.O Box
33606 Washington, D.C. 20033 1 (202)
587-3242 empea_at_empea.net www.empea.net EMPEA is a
nonprofit 501(c)(6) organization