Private capital managers invested $22 billion in disclosed deals in emerging markets in the first six months of this year, the highest half-year total since the Emerging Markets Private Equity Association (EMPEA) began reporting on investment in 2008 (see figure 1 below).
An uptick in large transactions in Emerging Asia drove much of the 46% increase from $16 billion in the first half of 2016, noted EMPEA in a release yesterday. “International limited partners have put ever more capital to work in emerging Asia in recent years,” noted the association.
Asia was also a major driver of the 26% year-on-year increase in fundraising activity to $23 billion in the first half. EMPEA pointed to the June closure of KKR Asian Fund III, the largest ever EM-focused fund with $9.3 billion.
EM private-market investment is still dwarfed by the figures for Western markets: first-half deal volume hit $134 billion in the US and $55 billion in Western Europe.
Nonetheless, the rise in Asia deal volume may help soothe some of the concerns that have been raised about the amount of capital that private equity firms have to deploy in the region. As of August 2016, they held $110 billion of dry powder, according to data provider Preqin.
Sharper sector focus
Meanwhile, sector funds gained notable ground in the first half when it came to capital-raising, said EMPEA. Funds with a sector-specific mandate lured the largest share of overall capital raised (23% in the first half) ever recorded by the association.
“This pivot by investors to target specific industries suggests a more nuanced understanding of these markets by limited partners and a growing bench of experienced fund managers operating in emerging economies with sector expertise,” said the association.
Green energy and healthcare were particular beneficiaries, also posting record first-half volumes of disclosed deals.
Renewables saw $1.55 billion of deals done in the first half, treble the $521 million invested in the first six months of 2016 (see figure below).
While utility-scale plants continue to attract the biggest tickets, general partners – or private equity firms – are also committing to off-grid and micro-generation assets. Sector-specific funds such as Actis Energy Fund 4, which closed with $2.75 billion in March, are driving increased investment activity, said EMPEA (see figure 3 below).
In healthcare, the number of deals completed (74) and disclosed capital invested ($1.84 billion) were both the highest half-year totals on record.
EMPEA said: “A surge in private investment activity in the sector has coincided with the emergence of healthcare-dedicated GPs in emerging Asia such as Lyfe Capital, BVCF and Lilly Asia Ventures.”