Emerging-Market Buyout Fundraising to Slow After Record 2007

By Netty Ismail
Dec. 22 (Bloomberg) -- Private-equity investors raised a record $63.5 billion this year to buy companies in the developing world, especially in Asia, even as the pace of fundraisings slowed amid the global financial crisis.
Private-equity funds focusing on emerging markets raised 7 percent more money this year, compared with the year-on-year increase of 78 percent in 2007, according to the Washington-based Emerging Markets Private Equity Association.
“We’re seeing a leveling 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 an e-mail to Bloomberg News.
Private-equity investors have pushed into new markets as credit dried up after the U.S. subprime mortgage market collapsed, slowing deal-making in the U.S. 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 Jan. 1, accounting for 58 percent of total fundraising 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 fundraising environment” amid the worst financial turmoil since the Great Depression, Alexander said.
Longer Cycle
“It’s reasonable to assume that the fundraising 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 March 31, 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 & Development Partners, which is seeking to raise $250 million to invest in Cambodia, postponed their plans till next year.
India, China
Morgan Stanley Capital International’s Emerging Markets Index, a benchmark for equities in 24 developing nations, tumbled 53 percent 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.