Emerging Markets Private Equity: The Current Landscape and the Road Ahead


Fundraising for emerging markets private equity in 20061 appears on track to match or beat the record-breaking 2005 numbers. In 2005, fundraising topped US$22 billion, or almost four times the US$5.8 billion raised in 2004. For year 2006 through 1 November, EMPEA estimates that US$21.9 billion has been raised already (see Figure 1).

Figure 1: Emerging Markets PE & VC Fundraising
2003 - Nov 2006 (in US$ millions)

Source: EMPEA Estimates

Regional Breakdowns

For Asia, excluding Japan, Australia and New Zealand, 94% of 2005 levels had already been reached (see Figure 2). Data for Central and Eastern Europe and Russia indicates that fundraising has already exceeded 2005 levels, including eight follow-on funds for the region.

After increases of over 70% in 2004 and 2005, fundraising for Latin America looks unlikely to match 2006 levels, though invested capital in the region continues to grow significantly. By far, the biggest growth story in terms of fundraising is from the Middle East/Africa2, the bulk of which is for the Middle East. Of the US$3.8 billion raised as of 1 November, EMPEA estimates that about 70% is for the Middle East, including North Africa. Fundraising year-to-date for the region is already 41% above 2005 levels, and that is on top of a 400% gain last year.

Improving Returns

There is a fundamental reason why interest in emerging markets remains so strong: returns have not only been improving over the last three years, they are looking fairly robust, on both an absolute basis and on a relative basis, compared to other PE markets.

Figure 2: Emerging Markets PE Fundraising by Region (in US$ millions)

Source: EMPEA Estimates

EMPEA tracks performance as reported by the Cambridge Associates emerging markets private equity index. Since June 2003, 1-, 3-, 5-, and 10-year returns have been improving steadily (see Figure 3). The 1-year return has exceeded 20% over the last two and a half years. The 3-year return has gone from -9.5% in June 2003 to 22.6% as of 30 June 2006. This increase reflects the strong cash flows to LPs that have been driven by a significantly improved exit environment over the past few years. Returns are also strong at the regional level, with the strongest showing in Central and Eastern Europe and Russia, and excellent 1-year performance in Latin America.

Most significantly, however, emerging markets private equity funds are outperforming their US counterparts (see Figure 4). Over the last 1- and 3-year periods, the top-quartile emerging market fund has beaten its US buyout and US VC counterparts by a substantial margin.

Figure 3: Trends in Emerging Markets VC & PE Returns (as of 30 June 2006)

Source: Cambridge Associates LLC Proprietary Index: pooled end-to-end returns, net of fees, expenses and carried interest

Figure 4: Performance Comparison3 – EM VC & PE Index vs US PE & VC Indices
(as of 30 June 2006)

Source: Cambridge Associates LLC Proprietary Indices: pooled end-to-end returns, net of fees, expenses and carried interest

Broadening and Deepening

Emerging markets private equity is not only growing in terms of funds raised, as the asset class is also maturing in terms of geographic and deal diversity. Private equity is expanding to new markets with no or limited history of private equity, and garnering larger deals. We are also seeing increased use of leverage, the emergence of sector-focused and follow-on funds, and secondary sales. A few highlights of developments in the asset class in 2006 include:

In Asia

  • Two Vietnam-focused funds closed at a total of US$160 million, while an ASEAN fund closed at US$130 million.
  • 2006 has seen at least five deals in Thailand, including the first secondary buyout in Southeast Asia.

In the Middle East

  • The first-ever Libyan fund is in the market for US$100 million and a major US private equity fund is seeking an investment in Libya. A US$300 million Pakistani fund has closed and already made its first investment.
  • In Egypt, private equity investors bought a majority stake in family-owned, leading pharmaceutical company Amoun Pharmaceuticals for US$459 million.

In CEE/Russia

  • At least eight follow-on funds have been raised in Russia, Poland and accession countries.
  • 2006 has seen at least three deals in Romania, totalling US$50 million.

In Latin America

  • There are four Mexico-dedicated funds in the market that are raising US$370 million. A follow-on Latin power fund closed at US$393 million.
  • In Uruguay, a leading private equity fund invested US$167 million for a 60% stake in Nuevo Banco. There were also two deals in Colombia.
  • The largest-ever Mexico buyout took place – 60% of the industrial products division of Kimberly Clark de Mexico – to a leading private equity/hedge fund for US$434 million.

In Africa

  • The largest-ever Southern African fund, dedicated to buyouts in Southern Africa, closed at US$750 million. Two new North Africa-dedicated funds closed on US$77 million.
  • Two record-breaking deals in South Africa – Alexander Forbes and Shoprite – are both expected to close at over US$1 billion.


The emerging markets private equity story looks very good, but there is a long way to go.

A realistic assessment would indicate that challenges remain. Emerging markets private equity remains nascent in many regions and countries. Penetration is still low versus the US and Europe. In 2005, fundraising for emerging markets represented only 15% of the US and 7.8% of the global total. In 2005, total emerging markets private equity fundraising was only 0.21% of GDP, versus 0.85% in Western Europe and 1.22% in the US. Further, approximately 23% of capital raised as of November 2006 for emerging markets is intended for India and China alone.

While the past two years have been extremely encouraging, it is still too early to judge the outcome of recent activity. Investment returns from the 2005 and 2006 vintage funds over a 3-, 5- and 10-year horizons will be important to validate the attractiveness of emerging markets private equity as an asset class over the long term.


1Includes known first or final closes through 1 November 2006.

2EMPEA reports the Middle East and Africa together because often, both Africa funds and Middle East funds include North Africa in their investment mandate.

3Results are a customised end-to-end calculation based on subsets of top-quartile funds in the Cambridge Associates LLC Emerging Markets Venture Capital and Private Equity, US Private Equity and US Venture Capital indices, as determined by net IRR ratings within each vintage year and index. Based on data compiled from 592 US private equity funds formed between 1986 and 2006; 1,111 US venture capital funds formed between 1981 and 2006; and 194 emerging markets venture capital and private equity funds formed between 1986 and 2006.