- Sarah Alexander


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  • A relatively immature asset class < 10 years for most countries < $100 billion raised during past decade Versus $136 billion raised globally in 2004 Most activity in Asia Poor average returns Driven by: Less sophisticated legal/regulatory environments Many inexperienced fund managers Exogenous shocks (Asia, Latin America, Russia) IPO markets shut down Non-control deal structures did not lend to trade sales Many LPs lost their shirts and most retreated Now, selectively , some LPs are returning Led by large pension funds, endowments, foundations
  • The combined GDP of Brazil, Russia, India and China (BRIC) will surpass that of the G6 by 2040. “ By 2050 both China and India will have overtaken the US economy in size.”
  • - Sarah Alexander

    1. 1. Sarah Alexander Emerging Markets Private Equity Association Presentation to the 5 th African Venture Capital Conference Mombasa, Kenya November 6-9, 2005 www.empea.net Developments in Emerging Markets Private Equity: The 2005 Landscape
    2. 2. Table of Contents <ul><ul><li>EMPEA Overview </li></ul></ul><ul><ul><li>Historical Landscape </li></ul></ul><ul><ul><li>Current Climate </li></ul></ul><ul><ul><li>Expected Future Trends </li></ul></ul>
    3. 3. I. EMPEA Overview <ul><li>What is EMPEA? </li></ul><ul><li>A broad-based membership organization founded in 2004 that serves private equity and venture capital firms, fund investors and service providers in the emerging markets of Africa, Asia, Eastern Europe, Latin America and the Middle East </li></ul><ul><li>EMPEA’s Mission </li></ul><ul><li>To strengthen the performance of private equity investing in emerging markets by helping private equity firms, limited partners and other stakeholders address industry challenges </li></ul><ul><li>EMPEA’s Programs </li></ul><ul><li>Programs bring together industry players to address common problems and highlight industry opportunities, collaborating with national and regional venture capital associations. </li></ul>
    4. 4. EMPEA Membership Charter Members Abraaj Capital Limited Actis AIG Capital Partners, Inc. Asian Development Bank Avenue Capital Group Barbosa, Müssnich & Aragão Baring Private Equity Asia Limited Baring Vostok Capital Partners CDC Group plc ChrysCapital Clearwater Capital Partners Clifford Chance Members Acap Partners African Capital Alliance Alfa Capital Partners Aureos Advisers Limited BPE Investimentos Brait South Africa Limited Capital International Capital Z Investment Partners Caribbean Basin Investors CVC International Conduit Capital Partners LLC Cordiant Euroventures Ukraine Fund FIR CAPITAL Partners Ltda. Debevoise & Plimpton LLP DEG Delta Private Equity Partners EFG-Hermes Private Equity Emerging Markets Partnership Ethos Private Equity Ltd European Investment Bank Evolvence Capital FMO- Netherlands Development Company Global Environment Fund GP Investimentos Hamilton Lane ICICI Venture Funds Management Co. Ltd International Finance Corporation Luxembourg Government Norton Rose SHUAA Partners SigmaBleyzer Siguler Guff & Company LLC SVG Advisers Limited Swiss State Secretariat for Economic Affairs The Carlyle Group Warburg Pincus International LLC Zephyr Management, LP LP Members Adams Street Partners Ltd. Bear Stearns Asset Management Coller Capital OPIC Paul Capital Partners PCG International Samba Financial Group Associate Members Barnellan Equity Advice Ltd Campbell Lutyens & Co Liberty Global Partners O’Melveny & Myers LLP Smyth Trade Credit LLC Technoserve Global Horizon Fund GVFL Limited IDFC Asset Management Co. Jahangir Siddiqui Group Lombard Investments Madagascar Development Partners Mekong Capital, Ltd Navis Capital Partners Limited Poteza Partners Rio Bravo Investments Ltd Romanian-American Enterprise Fund Small Enterprise Assistance Funds Stratus Corporation Thousand Hill Ventures TMG Capital Partners Ltd Tuninvest Finance Group Votorantim Novos Negocios Walden International Western NIS Enterprise Fund Westmount Pacific LLC First-year membership totals 83 firms operating throughout emerging market countries.
    5. 5. Board of Directors <ul><li>Teresa Barger </li></ul><ul><li>International Finance Corporation </li></ul><ul><li>Thomas Barry </li></ul><ul><li>Zephyr Management, L.P. </li></ul><ul><li>Michael Barth </li></ul><ul><li>Former CEO, FMO (Netherlands) </li></ul><ul><li>Antonio Bonchristiano </li></ul><ul><li>GP Investimentos, Brazil </li></ul><ul><li>Woodrow Campbell </li></ul><ul><li>Debevoise & Plimpton, LLP </li></ul><ul><li>Ashish Dhawan </li></ul><ul><li>ChrysCapital </li></ul><ul><li>Paul Fletcher </li></ul><ul><li>Actis </li></ul><ul><li>Mark Jennings </li></ul><ul><li>Chairman, Africa Venture Capital Association </li></ul>Roger Leeds - Chairman Johns Hopkins University/SAIS H. Jeffrey Leonard Global Environment Fund Donald Roth Emerging Markets Partnership Andre Roux Ethos Private Equity Ltd. George Siguler Siguler Guff & Company, LLC Pote Videt Private Equity (Thailand) Co., a subsidiary of Lombard Andrew Williams SVG Advisors Limited
    6. 6. International Advisory Board David Baylis Norton Rose Christopher K.B. Brotchie Senior Advisor, Baring Vostok, Asia, & India Funds Michael Calvey Baring Vostok Capital Partners Patricia Cloherty Delta Private Equity Partners Yasser El Mallawany EFG-Hermes Private Equity Cynthia Hostetler Overseas Private Investment Corporation (OPIC) Richard Laing CDC Group Plc Josh Lerner Harvard Business School Dennis Lockhart Board Chairman, Small Enterprise Assistance Fund Thomas ‘Mack’ McLarty Kissinger McLarty Associates / The Carlyle Group Steven Quamme Milestone Merchant Partners David Rubenstein The Carlyle Group Everett Santos Founder, Latin American Venture Capital Association James Seymour Commonfund Capital Robert Stillman Milbridge Capital Management, LLC Lip Bu Tan Walden International Paul Tierney Chairman, Technoserve, Inc.
    7. 7. Why EMPEA? <ul><li>Effective collaboration and regular interaction among industry players can strengthen performance and increase investment flows. </li></ul><ul><li>EMPEA surveys confirm critical need to enhance credibility of the asset class and improve the PE information flow to fund managers, prospective investors, local VC associations, governments and others </li></ul><ul><ul><li>Demystify markets for prospective new investors </li></ul></ul><ul><ul><li>Provide data and analysis on industry trends </li></ul></ul><ul><ul><li>Showcase countries </li></ul></ul><ul><ul><li>Disseminate success stories </li></ul></ul><ul><ul><li>Analyze key issues </li></ul></ul><ul><ul><li>Educate government regulators </li></ul></ul><ul><li>Industry participants seek more effective networking opportunities with fund managers, potential LPs, service providers and the DFIs </li></ul><ul><ul><li>Meet prospective investors </li></ul></ul><ul><ul><li>Share best practices </li></ul></ul><ul><ul><li>Learn about industry trends and issues </li></ul></ul>
    8. 8. EMPEA’s Programs <ul><li>Analyze, compile and disseminate relevant information and data about PE in emerging markets </li></ul><ul><ul><li>Quarterly newsletter on trends, success stories, best practices, member news, benchmarking data </li></ul></ul><ul><ul><li>Website - the leading global resource for on-line information on the asset class. </li></ul></ul><ul><ul><li>Evaluation of industry standards </li></ul></ul><ul><li>Conduct applied research </li></ul><ul><ul><li>Best practices </li></ul></ul><ul><ul><li>Surveys of LP Attitudes toward emerging markets PE </li></ul></ul><ul><ul><li>Database of funds active in EM, exits, fundraising </li></ul></ul><ul><li>Facilitate networking among fund managers, investors and others by organizing conferences and seminars on key topics of interest </li></ul><ul><ul><li>Every May in Washington, D.C., in conjunction with IFC </li></ul></ul><ul><ul><li>December 13-14, 2005 in London </li></ul></ul>Current and planned programs are shaped and prioritized based on input from members, as well as collaboration with national and regional VC and PE associations. Current programs include:
    9. 9. II. The Historical Landscape <ul><li>Emerging Markets Private Equity is a relatively immature industry </li></ul><ul><ul><li>10 years, $100 billion, Asia-centric </li></ul></ul><ul><ul><li>Not monolithic – regional and country variation </li></ul></ul><ul><li>1990s Vintage Funds </li></ul><ul><ul><li>Modeled on U.S. </li></ul></ul><ul><ul><li>Strong assumption of exits through IPOs </li></ul></ul><ul><ul><li>Minority stakes and/or investments in family owned businesses </li></ul></ul><ul><ul><li>Often first time, inexperienced fund managers </li></ul></ul><ul><ul><li>Weak corporate governance at fund level </li></ul></ul><ul><li>The result – disappointing performance </li></ul><ul><ul><li>Exogenous shocks closed off IPO markets </li></ul></ul><ul><ul><li>Minority positions difficult to sell </li></ul></ul><ul><li>Most LPs were disenchanted and retreated </li></ul>
    10. 10. Historically, Comparatively Poor Returns Comparative End-to-End Returns by Region 1 As of December 31, 2004 1 Cambridge Associates LLC Proprietary Index: pooled end to end returns, net of fees, expenses and carried interest 42.4 (6.6) US Venture Capital 12.3 5 US Private Equity 8.3 (10.2) Western Europe VC 19.2 17.9 Western Europe PE 12.1 (2.3) S&P 500 3.3 4.6 MSCI EM 5.4 1.9 MSCI EAFE 4.8 7.1 Eastern Europe/Russia PE (6.6) (9.6) Latin America PE 2 0.8 Asian PE 1.2 (0.1) Emerging Markets PE 10 Year (%) 5 Year (%)
    11. 11. III. Current Climate <ul><ul><li>March 2004. Survey conducted for EMPEA by Liberty Global Partners. </li></ul></ul><ul><li>An EMPEA Survey conducted in March 2004, indicated that 45% of LPs surveyed planned to increase commitments to emerging markets </li></ul><ul><li>“ Do you expect your commitments to emerging markets private equity funds to be higher, lower or the same in 5 years?” </li></ul>Renewed Investor Interest Don’t Know 10% Same 30 % Lower 15% Higher 45%
    12. 12. What has Changed? <ul><li>Compelling macro-economic trends in China, India </li></ul><ul><li>Globalization of the PE industry </li></ul><ul><ul><li>Portfolio companies need access to emerging markets </li></ul></ul><ul><ul><li>Leading US/Europe funds allocating to these markets from existing funds </li></ul></ul><ul><li>Increasing competition in the US/Europe, narrowing return expectations </li></ul><ul><li>Seasoned domestic fund managers; track records can be analyzed </li></ul><ul><li>Fund managers more hands-on </li></ul><ul><li>Improved regulatory/legal frameworks in some markets </li></ul><ul><ul><li>Stronger minority shareholder rights </li></ul></ul><ul><li>Greater acceptance of importance of corporate governance </li></ul><ul><li>Investments made with a more realistic eye toward exits </li></ul><ul><ul><li>Trade sales </li></ul></ul><ul><li>Exit environment and returns are improving </li></ul>
    13. 13. Compelling Macroeconomic Trends BRICs: Brazil, Russia, India, China G6: France, Germany, Italy, Japan, UK, USA India China US 0 10 20 30 40 50 60 2004 2010 2020 2030 2040 2050 Source: Jeffrey D. Sachs, Columbia University, January 2004 GNP (PPP in US$ trillions) Source: Goldman Sachs, Dreaming with BRICS: The Path to 2050, Global Economics Paper No. 99, 2003. (Dominic Wilson, Roopa Purushothaman) GDP (2003 US$ billions) BRICs overtake the G6 0 10000 20000 30000 40000 50000 60000 70000 80000 90000 100000 2000 2010 2020 2030 2040 2050 BRICs G6
    14. 14. Strengthening of Corporate Governance Source: “Corporate Governance in Asia: Overview & Trends”. Asian Corporate Governance Association, ACGA, Ltd 2005 <ul><li>Asia - since 1999, 11 countries have issued regulations requiring independent directors, 8 countries have required </li></ul><ul><li>audit committees </li></ul><ul><li>Latin America – Brazil introduced the Novo Mercado, with more rigorous listing requirements and minority </li></ul><ul><li>shareholder protection </li></ul>Yes Yes 2001 Indonesia Yes Yes 1999 Thailand Encouraged IPOs only 2002 Taiwan Yes Yes 2001/2005 Singapore Yes Yes 2002 Philippines Yes Yes 2001 Malaysia Yes (large firms) Yes 1999 Korea Optional Optional 2004 Japan Yes Yes 1999 India Yes Yes 1993/2004 Hong Kong Yes Yes 2002 China Audit Committees required? Independent directors required? Date of Main Codes Asian Country
    15. 15. Improved Exit Prospects <ul><li>Jan-Sept. 2005 </li></ul><ul><li>Africa and Middle East: $500m v. $2.5 b </li></ul><ul><li>Latin America: $720 mm v. $660m 2004 </li></ul><ul><li>CEE: $500 mm v. est $400 mm 2004 </li></ul><ul><li>Asia: $9.25 b v. 5.8 b in 2004. </li></ul>Source: EMPEA, Liberty Global, Asia Private Equity Reviews, VELA, LAVCA, EVCA estimates Divestments from EM Private Equity (US$bn) 5.8 9.25 0.3 0.4 0.66 0.72 2.5 0.5 0 2 4 6 8 10 12 14 2004 YTD 2005 Middle East & Africa Latin America CE Europe and Russia Asia
    16. 16. Improving Returns 1 Cambridge Associates LLC Proprietary Index: pooled end to end returns, net of fees, expenses and carried interest Comparative End-to-End Returns by Region 1 As of December 31, 2004
    17. 17. Leading to Increase in Fundraising US$ Billion Source: EMPEA, Liberty Global Partners Emerging Markets Private Equity Fundraising Snapshot, September 2005
    18. 18. Emerging Markets Private Equity Fundraising Snapshot, September 2005 Source: EMPEA, Liberty Global Partners Estimates Increase in Fundraising 2,074 9 370 NA Funds of Funds 22,972 106 12,118 4,993 EM Total 1,490 7 520 545 Africa/Middle East 1,381 10 1,121 1,020 Latin America 1,569 10 1,556 629 CEE/Russia (11,220) (34) (6,035) (1,000) Pan/other Asia (2,157) (15) (1,708) (1,100) India (5,155) (30) (1,809) (699) China 18,532 79 8,921 2,799 Asia (ex Japan/Aust) Est. Total Currently Solicited (US$ mm) Estimated # of Funds in Market Funds Raised 2005 thru Aug (US$ mm) Funds Raised 2004 (US$ mm)
    19. 19. IV. Expected Future Trends <ul><li>Expect a larger annual percentage to flow to China and India </li></ul><ul><ul><li>Through 2004, India and China accounted for an estimated 22% of PE investments in emerging markets (1) </li></ul></ul><ul><li>Beyond the BRICs </li></ul><ul><ul><li>Non-BRIC investments have in some instances outperformed over the last 10-15 years, though this may not be indicative of recent performance in these markets </li></ul></ul><ul><ul><li>Gross returns (1) through 2004 from all investments in: </li></ul></ul><ul><ul><ul><li>Russia – 14% </li></ul></ul></ul><ul><ul><ul><li>India – 17% </li></ul></ul></ul><ul><ul><ul><li>China – 3% </li></ul></ul></ul><ul><ul><ul><li>South Africa – 11% </li></ul></ul></ul><ul><ul><ul><li>Korea – 16% </li></ul></ul></ul><ul><ul><ul><li>Czech Republic – 28.5% </li></ul></ul></ul>1 Source: Cambridge Associates, Proprietary Database. Includes EM investments made by EM and non-EM funds in CA Database.
    20. 20. Expected Future Trends <ul><li>Emergence of Secondaries and Fund of Funds for EM </li></ul><ul><li>Greater demand from LPs for: </li></ul><ul><ul><li>Strong corporate governance </li></ul></ul><ul><ul><li>Best practices in fund management (reporting, valuation) </li></ul></ul><ul><ul><li>Demonstrated track records </li></ul></ul><ul><ul><li>Reliable regulatory and legal frameworks </li></ul></ul>
    21. 21. Thank You! Sarah Alexander Executive Director Emerging Markets Private Equity Association P.O Box 33606 Washington, D.C. 20033 +1 (202) 587-3242 [email_address] www.empea.net EMPEA is a nonprofit 501(c)(6) organization