Ashmore Special Situations Looks at Private Equity

LONDON (Reuters) – Distressed debt in emerging markets is now harder to find than in developed economies, asset manager Ashmore says, but its “special situations” funds see good growth in emerging private equity.

Ashmore's Global Special Situations Funds started a decade ago picking up distressed corporate debt in developing economies and helping companies achieve profitable returns — but now that market barely exists.

But with the more debt-heavy Western economies experiencing problems, the fund says it is still seeing good returns with the majority of its $8 billion (4 billion pounds) deployed funds used in private equity to buy stakes in firms in the world's still fast-growing areas.

“A decade ago there was a lot of distressed debt in emerging markets but now you find most of the distressed debt is in the G7 (major global economies),” Booth told Reuters in a telephone interview. “Going forward the bulk is going to be private equity.”

Ashmore says emerging private equity has proved to be a much more reliable asset class than listed equities in volatile stock markets.

Benchmark global emerging equities .MSCIEF are down almost 12 percent this year — and despite ongoing high economic growth and demand, Chinese stocks .SSEC have lost almost 50 percent.

Despite that, China remained probably Ashmore's leading emerging private equity market, Booth said, with India, Indonesia, the Philippines, Thailand, Turkey and Russia following behind.

Key new markets were seen as Ukraine, the Gulf economies and Latin America, he said, with investments in India looking set to grow well beyond their current $1 billion.

EQUITY MARKETS CORRELATED

“Emerging equities are risky because ultimately they are correlated with other equity markets and the S&P (New York stock index),” he said. “But there is just no correlation between the private equity sector and the S&P.”

More broadly across emerging markets, he said emerging sovereign debt was now seen as much less risky than Western stock markets — a dramatic reversal of the situation in previous decades.

Overall, he said emerging economies which had invested their savings in developed Western markets were now pulling their funds back home in the aftermath of the credit crunch and subprime crisis and investing domestically — giving good opportunities to local companies.

Emerging market private equity deals usually also involved much less leverage than in developed world deals, he said, reducing their exposure to credit markets. In any case, he said outside a couple of cases such as Russia and Kazakhstan developed banking sectors had been largely uninvolved in the U.S. subprime crisis.

“Emerging markets are a safe haven away from risky markets in the G7,” he said. “And the best way to hedge against inflation is investing in countries that benefit from high commodity prices.”

By Peter Apps