59%

An Overview of Private Equity Investing

in Emerging Markets

Carlos Perry
Chief Operating Officer
Emerging Markets Private Equity Association (EMPEA)

AGENDA FOR TODAY’S DISCUSSION

EM PE OVERVIEW:
WHY EMERGING
EMPEA FUNDRAISING, INVESTMENTS, AFRICA
MARKETS?
PERFORMANCE, KEY MARKETS

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 59%

EMPEA IS THE ONLY INDUSTRY ASSOCIATION REPRESENTING

PRIVATE EQUITY INVESTORS ACROSS GLOBAL EMERGING MARKETS
• Founded in 2004
Who We Are • Today representing nearly 300 leading fund managers, institutional
investors and other industry stakeholders managing >US$900b AUM.
• 13 full-time staff based in Washington, DC and Hong Kong

Our membership is diverse globally… …and by type of organization.

Global Emerging Markets 19% Fund Managers Service Providers +
Limited Partners

15%
CEE and CIS 15%

Asia
MENA 11% 19%

Latin America / Africa 26% 59%

Caribbean 16% 23%

EMPEA

EMPEA’S BOARD OF DIRECTORS CONSISTS OF MANY OF THE

LEADING PLAYERS IN EMERGING MARKETS PRIVATE EQUITY

EMPEA

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EMPEA = CONTENT + NETWORK + MISSION

A different kind of private equity and venture capital association.

What We Do • EMPEA supports a broad portfolio of exclusive members-

only research, including published reports, proprietary
data and other content.

• Through our membership and partner networks,

EMPEA nurtures a large global community of EM
PE investors, on display at our three major annual
conferences.

• EMPEA’s advocacy initiatives serve as a credible

voice for the industry to educate policy-makers
and investors about the unique value and role
of private equity investing in emerging markets.

EMPEA

EMPEA PUBLISHES MORE PROPRIETARY RESEARCH THAN ANY

OTHER PRIVATE EQUITY/VENTURE CAPITAL ASSOCIATION
Including a free weekly EM PE news digest, NewsWatch…register at www.empea.net

EMPEA

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 59%

EMPEA’S MISSION IS TO PROMOTE THE ASSET CLASS BROADLY

• EM PE can provide superior returns for investors;

What We Believe • EM PE represents value-added growth finance for companies;
• EM PE contributes positively to a country’s economic growth; and,
• EM PE enhances communities by improving environmental, social
and governance standards.

RECENT ISSUES ON WHICH EMPEA HAS TAKEN A PUBLIC POSITION

• EU AIFM Legislation
• U.S. Dodd Frank Legislation
• The Future of CDC (UK House of Commons Parliamentary Subcommittee)
• Investment Regulations in the United Arab Emirates and Impact on PE

EMPEA

EMPEA IS INTENSIVELY ENGAGED IN PROMOTING AFRICA PE

4
 59%

25% OF EMPEA MEMBERS ARE EITHER EXCLUSIVELY BOLD = EMPEA Africa Council

FOCUSED ON AFRICA OR HAVE A STRONG INTEREST Members w/Africa Interest

BIO
Members Exclusively Focused on Africa
Abraaj Capital
Absa Capital Private Equity Fanisi Venture Capital Management Actis
AFIG Fidelity Capital Partners Limited Altira Group
African Capital Alliance Harith Fund Managers Aureos
African Development Bank Helios Investment Partners CDC Group
Allan Gray Limited Horizon Equity Partners Chayton Capital
Angola Capital Partners I&P Management CVCI
Assetswise Capital International Housing Solutions The Carlyle Group
Beltone Private Equity Investec Asset Management Cordiant Capital
Blackthorn Capital Partners Kaizen Venture Partners DEG
Brait Private Equity Kingdom Zephyr Africa Management Denham Capital Management
Capital Invest Lereko Metier Capital Growth Fund European Investment Bank
Capitalworks Equity Partners Madagascar Development Partners Finnfund
Catalyst Principal Partners Marlow Capital Global Environment Fund
CICapital Private Equity Medu Capital FMO
Citadel Capital Pan Africa Capital Group IFC
CEDA Public Investment Corporation IFC AMC
Constant Capital RMA Capital MVision
DBSA Standard Bank Private Equity OPIC
Development Partners International SAVCA PROPARCO
East Africa Capital Partners South Suez SeedRock Capital
EFG-Hermes Private Equity Swicorp Silk Invest
Emerging Capital Partners (ECP) Trans-Century Limited SEAF
Ethos Private Equity Tuninvest-Africinvest Group Technoserve
Udo Udoma & Belo-Osagie The Rohatyn Group
Vantage Mezzanine II Wambia Capital 9
Venture Capital Trust Fund White & Case

AGENDA FOR TODAY’S DISCUSSION

EM PE OVERVIEW:
WHY EMERGING
EMPEA FUNDRAISING, INVESTMENTS, AFRICA
MARKETS?
PERFORMANCE, KEY MARKETS

10

5
 59%

EM ECONOMIES ARE GROWING 3X THE RATE OF DEVELOPED

ECONOMIES, REACHING $9 TRILLION OR 23% OF GLOBAL GDP IN 2009
$38
% SHARE OF GLOBAL ECONOMY
35 36 37 39 39 38
Emerging Markets $9 Emerging Markets 18% 19% 100%
20% 21% 22% 23%

OECD Countries 82% 81% 80% 79% 78% 77%

…AND 60%
OF THE
WORLD’S 2004 2005 2006 2007 2008 2009
POPULA-
TION! GDP CAGR, 2004-2009
+6% 8.6
8.5
8.0 0.5
7.3 0.5
OECD Countries $30 6.8 0.5
6.4 0.5
0.4 3.5 3.7
Africa 0.4 3.2
2.6 2.9
Asia 2.4
1.0 1.1 1.1 1.1
CEE/CIS 0.9 0.9
Latin America 2.3 2.5 2.6 2.7 2.7
2.2
MENA
0.5 0.5 0.6 0.6 0.6 0.6

2009 REAL GDP 2004 2005 2006 2007 2008 2009

(US$ trillions)
WHY EM?

ASIA, THE MIDDLE EAST AND AFRICA GDP GROWTH RATES ARE
SIGNIFICANTLY OUTPERFORMING GLOBAL AVERAGES
Asia Latin America OECD Countries World
CEE/CIS MENA Sub-Saharan Africa

12

10

6
GDP Growth (%)

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-2

-4

-6

WHY EM?

12

6
 59%

EM PE INVESTORS SEEK TO DIVERSIFY AND ACCESS THE HIGHEST

GROWTH MARKETS (OFTEN INACCESSIBLE VIA PUBLIC EQUITIES)
1
Outperformance Why? Comparatively lower entry valuations, greater impact on
potential multiple expansion from organic growth, value creation drivers, exit
opportunities...

2
Access to Attractive economic and demographic fundamentals, including
higher growth higher GDP growth per annum, younger populations and rising
markets income levels.

3
Portfolio Exposure beyond developed markets beyond thin exposure offered
diversification by EM equities positions (note…China).

4 Naked swimmers phenomenon (exposure tied to leverage, over-

Changing views
on developed levered economies, etc shows there’s no such thing as a “safe” asset
market risk or market (i.e. EMs looking better because developed markets look
worse)

WHY EM?

13

ACCESSING HIGH-GROWTH MARKETS IS THE PRIMARY REASON WHY

2/3RDS OF INSTITUTIONAL INVESTORS GROW THEIR EM PE EXPOSURE

Greater PE exposure to
67%
high-growth markets

EM risk-return improved
58%
vs. developed markets

Skills/experience of
54%
EM GPs improving

Other 3%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Source: EMPEA/Coller Capital Survey.

WHY EM?

14

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AGENDA FOR TODAY’S DISCUSSION

EM PE OVERVIEW:
WHY EMERGING
EMPEA FUNDRAISING, INVESTMENTS, AFRICA
MARKETS?
PERFORMANCE, KEY MARKETS

15

BRIEFLY…THE BASIC STRUCTURE OF THE PRIVATE EQUITY INDUSTRY

CONSISTS OF LPs, GPs AND PORTFOLIO COMPANIES

LPs GPs Portfolio Companies

(Limited Partners) (General Partners) (Investee Companies)

Institutional
Investors
• Endowments PE Fund Company A
• Pensions (public (Fund Manager)
and private)
• Family offices
Company B
• High Net Worth
Individuals
Company C
• Funds of Funds
• Development Investment
Finance Committee
Institutions (DFIs) Company D

EM PE

16

8
 59%

PE IN EMERGING MARKETS IS IN MANY IMPORTANT WAYS VERY

DIFFERENT TO PRIVATE EQUITY IN WESTERN, DEVELOPED MARKETS.

1 There is little to no leverage available to finance transactions.

Returns are therefore generated through value creation and the underlying
EM macro growth story.

2 Majority control/buyout deals are the exception, not the rule.

Most PE investments in EMs involve acquisition of minority/non-controlling

stakes, so GPs can only influence change/improved corporate performance in
more subtle/cooperative ways.

3 Market inefficiencies mean limited transparency, sub-optimal governance

standards, inconsistent protection of minority shareholders and fewer exit routes.
Fund manager differentiation to a great deal lies in their local knowledge
and networks, and their ability to skillfully navigate EM business cultures.

EM PE

17

MANY OF THE TOP EM GPs ARE SPECIALISTS IN THEIR MARKETS

BOLDED firms are both global and emerging markets leaders

Top 15 Global PE Firms Top 15 Emerging Markets PE Firms

(by US$ Assets Under Management) (by US$ Assets Under Management)

Goldman Sachs Macquarie

Blackstone Group Citi Venture Capital International
Carlyle Group Abraaj Capital
TPG Warburg Pincus
Kohlberg Kravis Roberts Kohlberg Kravis & Roberts
Oaktree Capital Management Actis
Bain Capital TPG
CVC Capital Partners The Carlyle Group
Warburg Pincus Baring Private Equity Asia
Apax Partners Citadel Capital
Morgan Stanley GP Investments
Macquarie CVC Capital Partners
Advent International IFC AMC
Permira Capital International
First Reserve Corporation Advent International

EM PE

18

9
 59%

LIKE IN OTHER GEOGRAPHIES AND WITH OTHER ASSET CLASSES, EM

PE IS STILL RECOVERING FROM THE GLOBAL FINANCIAL CRISIS
US$ billions
EM PE Funds Raised -40%
EM PE Capital Invested -66%
67
59
53
48

33 35
29
23 22 23

2006 2007 2008 2009 2010

Source: EMPEA

EM PE FUNDRAISING

STILL, EM PE FUNDRAISING HAS COME A LONG WAY, NOW

REACHING 13% OF GLOBAL TOTALS IN 2010 (FROM 4% IN 2004)
EM PE Funds Raised
559 550
Developed Market Funds Raised
466

309
220
187
155
59 67
27 33 23 23
7
2004 2005 2006 2007 2008 2009 2010

EM PE as % of Global PE Fundraising 18%

14% 13%
5% 8% 7%
4%

2004 2005 2006 2007 2008 2009 2010

EM PE FUNDRAISING

20

10
 59%

THIS TREND CONTINUES, AS LPs KEEP SAYING THEIR EM PE

COMMITMENTS WILL INCREASE, FROM 6-10% IN 2010, TO 11-15% IN
2012, TO 16-20% BY 2013.
(median proportion)

66% of LPs in 2011 expect to slightly or significantly increase their

commitments to EM PE in the near term (up from 59% in 2010) 2010
2012
38% 2013

30%
28%
26%
24% 24%
18% 18% 17%
15% 14%
12% 13% 12%
7%

1-5% 6-10% 11-15% 16-30% >30%

% of total PE exposure allocated to EM PE
Source: EMPEA/Coller Capital Survey
*Excludes DFIs and EM-dedicated Fund-of-Funds.

EM PE FUNDRAISING

21

TOTAL EM PE INVESTMENTS ARE GROWING AGAIN AFTER A BIG DROP

IN 2009, WITH MUCH OF THE CAPITAL GOING TO THE “BRICS”
US$ Billions

48 48

-23%

BRICs 22
Asia 28
29 29

22 22
18
22
CEE/CIS 6 12
14
Other 26
Latin America 7 2
MENA 3 11
3 1 7 7
Sub-Saharan Africa 3 2
1 1 1
2008 2009 2010 2008 2009 2010

Source: EMPEA

EM PE INVESTMENTS

22

11
 59%

TOTAL EM PE INVESTMENTS ARE FAR BELOW US TOTALS BUT NOT

FAR BEHIND WESTERN EUROPE

US$ billions
595
EM PE Investments
US PE Investments
W. Europe PE Investments

301

215

132
109
94
74 61
53 48 45
35 22 32 29

2006 2007 2008 2009 2010

EM PE INVESTMENTS

23

AVERAGE PE DEAL SIZE IN EMERGING MARKETS IN MANY MARKETS

COMPARES SIMILARLY TO DEALS IN DEVELOPED MARKETS
Average deal size, US$M
2008 2009 2010

156 159
148

92 96 97
88 86 88
77
63 68
62
49 49 45 46 46 45
44
37 40 36
19

Asia CEE/CIS Latin America MENA Sub-Saharan EM Overall UK US

Africa

EM PE INVESTMENTS

24

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 59%

AMONG THE LARGEST EMERGING MARKETS (THE BRICs), AVERAGE

DEAL SIZE IS LARGEST IN BRAZIL (2011’s “MOST ATTRACTIVE” FOR LPs)
Average deal size, US$M

-30%
174
2008 2009 2010

121

99
-29%
79
-6%
56
47 -24%
44
34 38
27 29
17

Brazil China India Russia

EM PE INVESTMENTS

25

EMERGING MARKETS OFFER THE POTENTIAL FOR SUPERIOR

RETURNS FOR BOTH LISTED AND UNLISTED ASSETS
Comparative End-to-End Returns (as of 30 September 2010)

30.00

25.00

20.00
% IRR, net

15.00
1-year
10.00
5-year
5.00
0.00
S&P 500 MSCI Emerging Western U.S. Private
Emerging Markets PE Europe PE & Equity Index
Markets &VC VC Index
(US$)
Source: Cambridge Associates, LLC.

EM PE PERFORMANCE

26

13
 59%

IN THE NEXT 3-5 YEARS, 77% OF LPs EXPECT 16%+ NET IRRS FROM
THEIR EM PE PORTFOLIOS
LPs’ Annual Net Return Expectations from PE
Portfolios Next 3-5 Years

100%
Net returns less than 16%
23%
80%

60% 71%

40% 77%
Net returns of 16%+
20%
29%
0%
Global PE Portfolio* EM PE Portfolio**

*Coller Capital’s Global PE Barometer. **EMPEA/Coller Capital Survey.

EM PE PERFORMANCE

27

AGENDA FOR TODAY’S DISCUSSION

EM PE OVERVIEW:
WHY EMERGING
EMPEA FUNDRAISING, INVESTMENTS, AFRICA
MARKETS?
PERFORMANCE, KEY MARKETS

28

14
 59%

HOW THE AFRICA PE OPPORTUNITY IS STARTING TO BE SEEN

High Economic Growth Potential:
• 5-6% GDP growth estimates for 2011
• Home to some of the fastest-growing economies in the
world (Ghana, Angola, DRC)
• Improving political stability (N Africa excepted for now)

Strong Demographics:
• Population of 1 billion
• Rise of the middle class consumer – by 2020, more
than half of Africa’s households will have discretionary
spending power (McKinsey Global Institute)

Opportunities in Many Sectors:

• Infrastructure: World Bank estimates that US$93
billion required over next 10 years to meet region’s
infrastructure gap
• Telecoms: Current mobile voice market penetration
only 50%
• Energy: Region’s vast mining and energy resources are
underdeveloped

AFRICA

29
29

AFRICA HAS REACHED 6% OF TOTAL EMERGING MARKETS PRIVATE

EQUITY FUNDS RAISED AND IS EXPECTED TO CONTINUE TO GROW
EM PE Fundraising Totals by Region (US$B)
100 100 100 100 100
100%

48%
Asia 58% 60% 61%
71%

25%
CEE/CIS 10% 8% 5%
Latin America 8% 7%
7% 7%
10% 24%
MENA 10%
9% 10%
3%
Sub-Saharan Africa 6% 4% 5% 2%
12% 4% 6%
Multi-Regional 8% 7% 3% 2%
2006 2007 2008 2009 2010
AFRICA

15
 59%

INVESTORS ARE TAKING NOTE OF AFRICA’S ATTRACTIVE

FUNDAMENTALS AND INVESTING MORE AGGRESIVELY IN THE REGION

LPs Viewing Africa as “Attractive” LPs Planning to “Begin” or “Expand”

or “Very Attractive” (%) Africa Commitments (%)

42 2009 16

37 2010 15

67 2011 38

AFRICA

THE PACE OF PE INVESTMENTS IS ACCELERATING IN AFRICA, AND

STRONG BRANDS ARE GETTING STRONGER WITH HELP FROM PE
Sampling of Africa PE Investment 2008–2010

25 investments
US$3.6B

13 investments
US$721m

19 investments
US$405m

59 investments
US$2.8B

AFRICA

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 59%

SOUTH AFRICAN INSTITUTIONAL INVESTORS ARE THE MOST ACTIVE

AFRICAN INVESTORS IN THEIR DOMESTIC PE INDUSTRY
• US$256 billion in pension fund assets under management
• Fastest compound annual growth in pension assets in 2010, rate of 28% per
annum (Towers Watson; USD terms)
• Current average pension fund exposure to private equity in South Africa is
less than 1% --> recently released draft regulations allow pension funds to
allocate up to 10% to the asset class
• South Africa’s endowment funds, foundations, insurance companies and banks
are also active investors in PE
South Africa LPs Active in South African PE Funds
Where are South Africa-focused fund managers looking
to raise capital in the next 12 months - Geography? • Eskom Pension and Provident Fund
• Public Investment Corporation (GEPF)
• FNB Pension Fund
• Mittal Steel South Africa Pension and Provident Funds
• Exxaro Pension and Provident Fund
South Africa • Kumba Iron Ore Selector Pension and Provident Fund
Europe • ABSA Group Pension Fund Limited
• Anglo American Corporation Pension Fund
U.S. • Engineering Industries Pension Fund
• Iscor Pension Fund
Other • Metal Industries Pension Fund
• Transnet Retirement Fund
• Transport Pension Fund
Source: Deloitte/SAVCA : The South African Private Equity Confidence Survey, 2009. • Sentinel Mining Industry Retirement Fund
• Mines Employees Pension Fund

SOUTH AFRICA: GEPF (Government Employees Pension Fund), AFRICA’S

LARGEST PENSION FUND, CAN INVEST 3-9% OF ITS PORTFOLIO IN PE.

• Africa’s largest pension fund

• 1.2 million active members, 318,000 pensioners and beneficiaries
• Assets totaling R790 billion (US$115B)
• The assets of GEPF are primarily managed by the Public Investment Corporation
(PIC), wholly owned by the South African government (and EMPEA member)

• Private equity allocation:

• Lower limit 3% (~US$4 billion)
• Strategic 6-8%
• Upper limit 9% (~US$12 billion)
• Private equity investments are aimed at infrastructure, socially desirable
investments and BEE financing
• Isibaya Fund, Pan African Infrastructure Development Fund, etc.
AFRICA

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 59%

IN 2010, EVEN AS WE CONTINUED TO RECOVER FROM THE

DOWNTURN, AFRICA GPs RAISED IMPRESSIVE PE FUNDS
INCREMENTAL AND FINAL FUND CLOSES

US$m ECP 613

K.Zephyr 492

ABSA 457

Aureos 381

Helios 286

ACA 238

Tuninvest-AfricInvest 207

Investec 155

Phatisa 135

Sanlam 109

GEF 84

AFRICA

TO LEARN MORE, PLEASE VISIT US AT…

www.empea.net

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