PE funds start the drift from BRICs

By Paul Mackintosh - 10/02/14

The full-year private equity activity statistics just released by the Emerging Markets Private Equity Association (EMPEA) have been attracting quite a bit of attention and analysis in the media. And, allowing for a little bias in an organisation whose raison d’etre is the emerging markets investment story, they paint an interesting picture.

Fundraising and investments were both down on the previous year, with  US$24 billion invested in emerging markets over 2013, a 7% decline on 2012, and capital raising down to $36 billion, a 19% fall versus 2012. EMPEA’s take on this is that emerging markets are simply at that leg of the cycle. “Fundraising in private equity follows a cyclical pattern and we are still in a downturn phase of the cycle,” said Robert van Zwieten, President and CEO, EMPEA. But there are trends to suggest that the market is moving in new directions too.

For one thing, perhaps not so appealing for committed China and India investors, “some of the biggest year-over-year gains from 2013’s deployment of capital went to markets beyond the BRICs– including those in Southeast Asia, East Africa and Latin America (ex. Brazil) – a strong indication of where investors are seeing the most promising prospects for growth.” Southeast Asia, indeed, hit a six-year high, with $2.2 billion invested in 61 deals, 39% up on 2012. India also held up fairly well, up 11% by volume and holding flat in total capital.”  ”For China, meanwhile, despite lingering uncertainty on the closure of the domestic IPO markets, deal activity continued and Q4 2013 ended on a positive note with 89 investments executed, the most in a single quarter for the country since Q3 2011.” And India and China together still account for 55% of total investment in 2013. And Asia as a whole still accounts for 66.2% of all PE investments into the markets that EMPEA covers.

A more balanced investment picture in Asia’s emerging markets could be no bad thing, as well as a long-overdue re-correction in favour of the smaller tiger economies that used to occupy such a share of global investor attention back in the 1990s. And the drift away from BRICs does suggest that investors are no longer so starry-eyed about the prospects for large continental economies. Once again, a little more realism around these would be no bad thing – not least as the slight declines in fundraising and investment since 2012 appear to be more like minor corrections than serious causes for concern.