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December 18, 2008

"Make or Break Years for Emerging Market PE Funds"

In an video interview to Private Equity Online, Jonathon Bond, Head of fundraising and investor relations at Actis (the UK-based emerging markets specialist which closed a new $2.9 billion fund earlier this month), says the current global economic crisis presents EM PE funds with an unique opportunity to "come of age". According to him, returns in Asia, Africa and Latin America will be relatively resilient over the next two years. "LPs will say we need to find growth and in most emerging markets, growth would be between 2-8%". While the holding periods might be longer, for "LPs looking for growth and positive returns and have pensioners to pay, liabilities to meet," emerging markets would be a good bet over the next 2-3 years. Provided they are disciplined, adopt strategies appropriate for local conditions and manage the expectations of the investors, EM PE funds will have an opportunity to prove to LPs that they deserve a 20-30% allocation in their international PE portfolios.

In a related interview, Chris Rowlands, Head of 3i Asia, says the relatively higher growth in Emerging Markets, especially Asia, is expected to attract more PE investments into the region. The pre-eminence of unleveraged growth capital (as against control buyouts) in these markets, along with a focus on Infrastructure investments, will help the cause of these markets.

Bill Emmott, Former editor-in-chief of The Economist, in his interview to Private Equity Online, points out that while the current problems facing developed markets is structural, that of emerging markets is cyclical and therefore EMs can be expected to outperform on a relative basis. He however advises investors to diversify across EMs due to their inherent immaturity and volatility.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in