Private equity funds have increased their total of assets under management in emerging markets funds to more than $500 billion, a survey of private capital found, a sign the sector could begin to catch up with other regions if the trend continues.
Total assets held by emerging markets-focused private equity funds increased from $254 billion at the end of 2010 to $564 billion as of September 2016, according to alternative assets research firm Preqin.
The firm also found that the EM-dedicated private equity funds have seen their assets grow at an average annual rate of 21 percent over the past decade, growing from $93 billion in December 2006.
This comes despite EM-focused private equity funds representing a declining percentage of global activity in recent years. In 2016 187 emerging market private equity funds were closed for new deposits with $45 billion of aggregate annual capital raised. That’s down from 2011 when 482 private equity funds were closed for funding and raised $87 billion.
Preqin’s data showed investors still viewed North America, Europe and Asia more favorably than emerging markets as “presenting the best opportunities.”
“Robust performance and recent net capital flows to investors have proved that emerging markets-focused vehicles can offer real returns on investment,” said Christopher Elvin, head of private equity products at Preqin. “While fewer investors view emerging markets as presenting the best opportunities compared to Europe or North America, if EM-focused funds can maintain their strong performance we may see that gap narrow in coming quarters.”
Investors in developed markets have historically allocated greater capital to assets from their home markets and other developed markets as emerging market assets are often viewed as riskier and less liquid. Just 14 percent of the global investor population is based in emerging market countries, according to Preqin’s data.
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