Private capital raised for and invested in emerging Asia fell last year amid tough conditions, following the trend in global emerging markets, but India was a notable bright spot, according to research published yesterday.
For emerging Asia, private fundraising fell by 7% to $31.1 billion and investment by 14% to $23.4 billion in 2015, found the Emerging Market Private Equity Association (EMPEA). This was a less heavy decline than for emerging markets globally, which saw fundraising drop 17% to $44 billion and investment fall 24% to $29 billion (see first graph below).
By contrast, India saw year-on-year growth of 80% to $4.5 billion in capital raised and of 56% to $6.8 billion of capital invested. This was driven by large GPs returning to the fundraising trail and increased venture capital momentum, noted Washington, DC-based EMPEA.
The Middle East and North Africa (Mena) region was another relatively bright spot for EM private capital, with fundraising increasing by 1% and investment by 23%. The Mena investment environment appears poised for change, noted EMPEA, with the opening of Saudi Arabia’s public markets to foreign investors in 2015 and the lifting of Iranian sanctions in early 2016 generating opportunities for asset managers in the region.
Globally, EM private credit and venture capital (VC) recording substantial growth in funds raised. General partners brought in $7.3 billion for emerging-market VC – the second highest annual total for 10 years – and $5.28 billion for private credit, a 42% jump from $3.71 billion in 2014.
This reflected increased diversification across fund strategies for EM-focused GPs, noted EMPEA (see second graph, below). In 2015, growth capital and buyout strategies combined for less than 60% of total annual capital raised for EMs, as against their share of more than 70% each year since 2010.
Seeking to explain the reasons behind the overall fundraising and investment decline, EMPEA said: “The impact of current macroeconomic challenges proved to be highly differentiated from one market to another. Yet there were a few common themes that investors faced to varying degrees across emerging markets, including currency volatility, capital outflows and declines in commodity prices.”
Slowing economic growth in Asia’s biggest market also took its toll, noted the association. Declines in fundraising and investment in China partly contributed to lower 2015 EM private capital totals, as the market typically accounts for a large share of EM activity (around 20% of fundraising and 40% of investment).
While EM fundraising and investment fell in dollar terms, the number of investee companies increased. Fund managers invested in 1,475 companies in 2015, an 8% rise year-on-year and the highest annual total since EMPEA began reporting investment statistics in 2008. This increase is at least partially due to the rise of early-stage venture capital in certain markets, most notably China and India, said the association.
By sector, consumer services attracted the most capital in 2015, with $9.8 billion deployed, and healthcare had a breakout year, taking in $2.2 billion. Moreover, total capital invested across the two sectors was the highest since EMPEA began publishing statistics.
At the other end of the scale, only 12 private capital investments in the oil-and-gas sector were recorded across emerging markets in 2015, the fewest since EMPEA began reporting in 2008. This was well below the 28 deals completed in 2014, the second lowest annual total, and has coincided with the collapse in oil prices.
“A difficult year for companies in the sector, however, could open up new and diverse investment opportunities as distressed energy assets come to market,” said EMPEA.