where to start? why not fundraising!
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Private equity in emerging markets A place to look for returns in the current downturn? Prof. Luc Nijs Founder & Chairman Horizon Ltd London, March 2, 2009 ICBI’s Fund Forum emerging markets 2009. Where to start? Why not fundraising!. - PowerPoint PPT PresentationTRANSCRIPT
Private equity in emerging markets
A place to look for returns in the current downturn?
Prof. Luc NijsFounder & Chairman Horizon Ltd
London, March 2, 2009ICBI’s Fund Forum emerging markets 2009
Where to start? Why not fundraising!
Despite the market conditions EM PE raised $ 66,5 bio in 2008, a 12% rise
Proportional share in total global PE fundraising raising for 5 years in a row now
Relative decoupling & economic power shifting is reinforced by current recession
Cyclical recession became a structural one and the risk of L-shape depression is looming (cf. Ponzi economy)
Source: EMPEA Feb. 2009
Fundraising per region
A (new) inconvenient truth about risk
Political instability
Legal / Regulatory
Curreny (F/X)
Market fundamentals
Counterparty
Market fundamentals
Structural issues
Environmental
Legal / Regulatory
Pre-crisis Thinking
Post-crisis Thinking
Em
ergi
ng M
arke
tsD
eveloped Markets
High riskHigh Growth
High RiskHigh Growth
High RiskLow Growth
Low RiskLow Growth
Emerging Markets Risks Developed Markets Risks
Av. risk premiums in EMs (%, 2006-2008)
Another inconvenience
Capital inflows to developing world
(Source: IFF, 27 January 2009)
Historic & projected EV/EBITDA
Source: Prop. Research, averages for the clusters
Market Outlook
Cheaper valuations (although some parties sometimes are still in denial)
Attractive deal flow to arrive
Capital constrained entrepreneurs & management
BRIC as a catalyst gone?
But major differentiators among emerging markets
Semi-globalization = procession of Echternach
Market Outlook
But major differentiators among emerging markets
CEE & CIS: Sovereign risk & currency management Debt-financed growth model is broke Euro and Nordic currency infrastructure has eroded fundamentals Mid/Long term catch-up dynamics still in place South-East Europe & Turkey still attractive Russia has a significant implied X-factor at present time
MENA: Undeniable impact on economy SWFs are diverting capital flows back home Mid/Long term outlook still positive Valuations in region still need recalibration to new reality
Market Outlook
But major differentiators among emerging markets
Mena: Still growth but impact of the credit situation trickling
down Commodity play Sector focus
Sub-Saharan Africa: Limited effect of credit situation Tremendous improvement in investment environment Good risk-adjusted returns GDP growth & overall economic development decoupled
from commodity play
Market Outlook
But major differentiators among emerging markets
Asia: China as a manufacturing hub Semi-globalization shows Global gross capital formation (cross-border at risk) Unrealistic valuations in India at present
Volume of investments dropped 38,5 % in 2008 to $ 10,7 bio and are expected to drop to $ 5 bio this year
3/4th of PE investments were done in listed entities
Can they become our customers of last resort? Social unrest might destabilize the vulnerable progress made South Korea, Singapore, Malaysia etc weak on their feet for
the time to come
Something else that is inconvenient
Past performance & GP selection
Institutional investor views: EM versus developed (December 2008)
PE penetration as an asset class
Source: Goldman Sachs, EMPEA
Expecting to grow
Source: EMPEA
Cause of…..
Source: EMPEA 2008
EM Private Equity performance
Source: Cambridge Associates LLC & prop. research,: pooled end-to-end returns, net of fees, expenses and carried interest
Comparative end-to-end results 6/30/2008
(*) Statistical noise likely due to low sample distribution
Source: Cambridge Associates LLC & prop. research,: pooled end-to-end returns, net of fees, expenses and carried interest
Impact on portfolio construction
In 2008 about 1/3 of the total pool of LPs had some kind of exposure to EMs
Portfolio weighting somewhere between 10-30% Do or die for LPs the next couple of years Systemic risk in Western markets are not reflected in risk premiums
Source: Proprietary data
Portfolio exposure
Is this time going to be different for EMs?
During previous booms and busts the developed and developing world evolved in a parallel fashion
This time there is a (partly) contra-cyclical pattern
Political & regulatory impact HC issues Global versus local teams: the best of both Business model rethinking & paradigm shift EM debt usage less or more prudent
Let gravity have its way
Darwinian tsunami & paradigm shifting
Where are you?
Contact
Riga Graduate School of LawLaw & Finance ChairStrelnieku iela 4k-2
Riga LV-1010LATVIA
[email protected]. +37167039230