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LPs plan to increase exposure to emerging markets despite volatility: Survey

  • Investors ‘ignoring the noise’ of short term volatility
  • LPs plan to increase emerging market exposure
  • Association launches LP council

LPs plan to increase their exposure to emerging markets over the next two years, especially to the most sought after regions like Latin American, excluding Brazil, and Southeast Asia, according to EMPEA’s Global Limited Partners Survey 2014.

EMPEA, which surveyed 106 limited partners based in 30 countries, found 41 percent of respondents plan to increase the percentage of their total private equity allocation targeted at emerging markets over the next two years.

The survey found 54 percent of respondents expect to increase the dollar value of new commitments to emerging markets—which is smaller than last year’s findings of 75 percent, according to EMPEA.

Interestingly, LPs don’t appear to be turned off by the recent volatility in some emerging regions such as Brazil and China. The survey found 67 percent of institutional investor respondents view the risk profile of private equity in emerging markets as unchanged over the past year.

In part, that confidence could be due to performance of emerging markets funds meeting expectations. About 78 percent of respondents said their emerging markets private equity portfolio performance had met or exceeded expectations, compared with 22 percent who found underperformance.

A majority of LPs expect net returns of 16 percent or more from emerging markets private equity—a downward adjustment for emerging markets compared to prior surveys.

“Investors in emerging markets private equity are ‘ignoring the noise’ from short-term volatility and continue to believe in the emerging markets private equity investment thesis,” said Maryam Haque, head of data and analysis at EMPEA in a statement.

More than half the LP respondents in the survey plant to begin or expand commitments to Southeast Asia, while 45 percent of respondents cited Latin America (ex-Brazil) and 38 percent named Sub-Saharan Africa as regions they will expand or begin targeting.

Meanwhile, the highest percentage of respondents, 11 percent, plan to decrease or stop investing in India, followed by China at 8 percent, and Brazil, 8 percent. Central and Eastern Europe, Russia/CIS and Turkey will likely see the least amount of new investor interest, according to the report.

EMPEA also announced the launch of its Limited Partners Council that will help guide EMPEA’s research and educational offerings aimed at LPs.

The council will include: Jesus Arguelles, portfolio manager, Ontario Teachers’ Pension Plan; Nicolas Bañados Lyon, managing director of private equity at Megeve Investments; Lindel Eakman, managing director, private markets, University of Texas Investment Management Company; Pierre Fortier, vice president, investments private equity at Caisse de dépôt et placement du Québec; Alcina Goosby, special investment officer, New York State Common Retirement Fund; Peter Keehn, global head of private equity at Allstate Investments; Serge Lépine, chief executive officer at the Qatar Abu Dhabi Investment Company; Anthony O’Toole, executive vice president, chief financial and investment officer at American Legacy Foundation; and Alona Ponomareva, principal portfolio manager in private equity at World Bank Pension Plan.