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Sarah AlexanderEmerging Markets Private Equity Association
Presentation to the 5th African Venture Capital ConferenceMombasa, Kenya
November 6-9, 2005
www.empea.net
Developments in Emerging Markets Developments in Emerging Markets Private Equity: The 2005 LandscapePrivate Equity: The 2005 Landscape
EMPEA Presentation to AVCA2November 7, 2005
Table of ContentsTable of Contents
I. EMPEA Overview
II. Historical Landscape
III. Current Climate
IV. Expected Future Trends
EMPEA Presentation to AVCA3November 7, 2005
I. EMPEA OverviewI. EMPEA Overview
What is EMPEA?
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
EMPEA’s Mission
To strengthen the performance of private equity investing in emerging markets by helping private equity firms, limited partners and other stakeholders address industry challenges
EMPEA’s Programs
Programs bring together industry players to address common problems and highlight industry opportunities, collaborating with national and regional venture capital associations.
EMPEA Presentation to AVCA4November 7, 2005
EMPEA MembershipEMPEA Membership
Charter Members
Abraaj Capital LimitedActisAIG Capital Partners, Inc.Asian Development BankAvenue Capital Group Barbosa, Müssnich & AragãoBaring Private Equity Asia LimitedBaring Vostok Capital PartnersCDC Group plcChrysCapitalClearwater Capital PartnersClifford Chance
Members Acap PartnersAfrican Capital AllianceAlfa Capital PartnersAureos Advisers LimitedBPE InvestimentosBrait South Africa Limited Capital International Capital Z Investment PartnersCaribbean Basin InvestorsCVC International Conduit Capital Partners LLCCordiantEuroventures Ukraine FundFIR CAPITAL Partners Ltda.
Debevoise & Plimpton LLP DEGDelta Private Equity PartnersEFG-Hermes Private EquityEmerging Markets PartnershipEthos Private Equity LtdEuropean Investment BankEvolvence CapitalFMO- Netherlands Development CompanyGlobal Environment Fund GP InvestimentosHamilton Lane
ICICI Venture Funds Management Co. Ltd International Finance Corporation Luxembourg GovernmentNorton Rose SHUAA PartnersSigmaBleyzerSiguler Guff & Company LLCSVG Advisers LimitedSwiss State Secretariat for Economic AffairsThe Carlyle GroupWarburg Pincus International LLCZephyr Management, LP
LP Members
Adams Street Partners Ltd.Bear Stearns Asset ManagementColler CapitalOPICPaul Capital PartnersPCG InternationalSamba Financial GroupAssociate Members
Barnellan Equity Advice LtdCampbell Lutyens & CoLiberty Global PartnersO’Melveny & Myers LLPSmyth Trade Credit LLCTechnoserve
Global Horizon FundGVFL LimitedIDFC Asset Management Co. Jahangir Siddiqui GroupLombard InvestmentsMadagascar Development PartnersMekong Capital, LtdNavis Capital Partners LimitedPoteza PartnersRio Bravo Investments LtdRomanian-American Enterprise FundSmall Enterprise Assistance FundsStratus CorporationThousand Hill Ventures
TMG Capital Partners LtdTuninvest Finance GroupVotorantim Novos NegociosWalden InternationalWestern NIS Enterprise Fund Westmount Pacific LLC
First-year membership totals 83 firms operating throughout emerging market countries.
EMPEA Presentation to AVCA5November 7, 2005
Board of DirectorsBoard of DirectorsTeresa Barger International Finance Corporation
Thomas Barry Zephyr Management, L.P.
Michael BarthFormer CEO, FMO (Netherlands)
Antonio BonchristianoGP Investimentos, Brazil
Woodrow CampbellDebevoise & Plimpton, LLP
Ashish Dhawan ChrysCapital
Paul FletcherActis
Mark JenningsChairman, Africa Venture Capital Association
Roger Leeds - ChairmanJohns Hopkins University/SAIS
H. Jeffrey LeonardGlobal Environment Fund
Donald RothEmerging Markets Partnership
Andre RouxEthos Private Equity Ltd.
George SigulerSiguler Guff & Company, LLC
Pote VidetPrivate Equity (Thailand) Co., a subsidiary of Lombard
Andrew WilliamsSVG Advisors Limited
EMPEA Presentation to AVCA6November 7, 2005
International Advisory BoardInternational Advisory BoardDavid BaylisNorton Rose
Christopher K.B. BrotchieSenior Advisor, Baring Vostok, Asia, & India Funds
Michael CalveyBaring Vostok Capital Partners
Patricia Cloherty Delta Private Equity Partners
Yasser El MallawanyEFG-Hermes Private Equity
Cynthia HostetlerOverseas Private Investment Corporation (OPIC)
Richard LaingCDC Group Plc
Josh LernerHarvard Business School
Dennis LockhartBoard Chairman, Small Enterprise Assistance Fund
Thomas ‘Mack’ McLartyKissinger McLarty Associates / The Carlyle Group
Steven QuammeMilestone Merchant Partners
David RubensteinThe Carlyle Group
Everett Santos Founder, Latin American Venture Capital Association
James SeymourCommonfund Capital
Robert StillmanMilbridge Capital Management, LLC
Lip Bu TanWalden International
Paul TierneyChairman, Technoserve, Inc.
EMPEA Presentation to AVCA7November 7, 2005
Why EMPEA?Why EMPEA?
Effective collaboration and regular interaction among industry players can strengthen performance and increase investment flows.
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
Demystify markets for prospective new investors Provide data and analysis on industry trends Showcase countries Disseminate success stories Analyze key issues Educate government regulators
Industry participants seek more effective networking opportunities with fund managers, potential LPs, service providers and the DFIs
Meet prospective investors Share best practices Learn about industry trends and issues
EMPEA Presentation to AVCA8November 7, 2005
EMPEA’s ProgramsEMPEA’s Programs
Analyze, compile and disseminate relevant information and data about PE in emerging markets Quarterly newsletter on trends, success stories, best practices, member news,
benchmarking data Website - the leading global resource for on-line information on the asset class. Evaluation of industry standards
Conduct applied research Best practices Surveys of LP Attitudes toward emerging markets PE Database of funds active in EM, exits, fundraising
Facilitate networking among fund managers, investors and others by organizing conferences and seminars on key topics of interest Every May in Washington, D.C., in conjunction with IFC December 13-14, 2005 in London
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:
EMPEA Presentation to AVCA9November 7, 2005
II. The Historical LandscapeII. The Historical Landscape
Emerging Markets Private Equity is a relatively immature industry
10 years, $100 billion, Asia-centric Not monolithic – regional and country variation
1990s Vintage Funds
Modeled on U.S. Strong assumption of exits through IPOs Minority stakes and/or investments in family owned businesses Often first time, inexperienced fund managers Weak corporate governance at fund level
The result – disappointing performance
Exogenous shocks closed off IPO markets Minority positions difficult to sell
Most LPs were disenchanted and retreated
EMPEA Presentation to AVCA10November 7, 2005
Historically, Comparatively Poor ReturnsHistorically, Comparatively Poor Returns
Comparative End-to-End Returns by Region 1
As of December 31, 2004
5 Year (%) 10 Year (%)
Emerging Markets PE (0.1) 1.2
Asian PE 0.8 2
Latin America PE (9.6) (6.6)
Eastern Europe/Russia PE 7.1 4.8
MSCI EAFE 1.9 5.4
MSCI EM 4.6 3.3
S&P 500 (2.3) 12.1
Western Europe PE 17.9 19.2
Western Europe VC (10.2) 8.3
US Private Equity 5 12.3
US Venture Capital (6.6) 42.4
1Cambridge Associates LLC Proprietary Index: pooled end to end returns, net of fees, expenses and carried interest
EMPEA Presentation to AVCA11November 7, 2005
III. Current ClimateIII. Current Climate
An EMPEA Survey conducted in March 2004, indicated that 45% of LPs surveyed planned to increase commitments to emerging markets
“Do you expect your commitments to emerging markets private equity funds to be higher, lower or the same in 5 years?”
Don’t Know10%
Same30%
Lower15%
Higher45%
March 2004. Survey conducted for EMPEA by Liberty Global Partners.
Renewed Investor InterestRenewed Investor Interest
EMPEA Presentation to AVCA12November 7, 2005
What has Changed? What has Changed? Compelling macro-economic trends in China, India Globalization of the PE industry
Portfolio companies need access to emerging markets Leading US/Europe funds allocating to these markets from existing
funds Increasing competition in the US/Europe, narrowing return
expectations Seasoned domestic fund managers; track records can be analyzed Fund managers more hands-on Improved regulatory/legal frameworks in some markets
Stronger minority shareholder rights Greater acceptance of importance of corporate governance Investments made with a more realistic eye toward exits
Trade sales Exit environment and returns are improving
EMPEA Presentation to AVCA13November 7, 2005
BRICs: Brazil, Russia, India, ChinaG6: 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)
Compelling Macroeconomic Trends Compelling Macroeconomic Trends
Source: Goldman Sachs, Dreaming with BRICS: The Path to 2050, Global Economics Paper No. 99, 2003. (Dominic Wilson, Roopa Purushothaman)
GDP (2003 US$ billions)
BRICsovertake
the G6
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
100000
2000 2010 2020 2030 2040 2050
BRICs
G6
EMPEA Presentation to AVCA14November 7, 2005
Strengthening of Corporate GovernanceStrengthening of Corporate GovernanceAsian Country Date of Main
CodesIndependent
directors required?Audit Committees
required?
China 2002 Yes Yes
Hong Kong 1993/2004 Yes Yes
India 1999 Yes Yes
Indonesia 2001 Yes Yes
Japan 2004 Optional Optional
Korea 1999 Yes Yes (large firms)
Malaysia 2001 Yes Yes
Philippines 2002 Yes Yes
Singapore 2001/2005 Yes Yes
Taiwan 2002 IPOs only Encouraged
Thailand 1999 Yes Yes
Source: “Corporate Governance in Asia: Overview & Trends”. Asian Corporate Governance Association, ACGA, Ltd 2005
•Asia - since 1999, 11 countries have issued regulations requiring independent directors, 8 countries have required
audit committees•Latin America – Brazil introduced the Novo Mercado, with more rigorous listing requirements and minority shareholder protection
EMPEA Presentation to AVCA15November 7, 2005
Improved Exit ProspectsImproved Exit Prospects
Jan-Sept. 2005
Africa and Middle East: $500m v. $2.5 b
Latin America: $720 mm v. $660m 2004
CEE: $500 mm v. est $400 mm 2004
Asia: $9.25 b v. 5.8 b in 2004.
Source: EMPEA, Liberty Global, Asia Private Equity Reviews, VELA, LAVCA, EVCA estimates
Divestments from EM Private Equity (US$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
EMPEA Presentation to AVCA16November 7, 2005
Improving ReturnsImproving Returns
1Qtr (%) 1 Year (%) 3 Year (%)
Emerging Markets VC & PE 10.4 17.1 5.2
Asian PE 11.1 15.5 6.5
Latin America PE 9.0 9.0 (6.0)
CEE/Russia PE 5.2 26.8 11.9
US Venture Capital Index 6.7 15.4 (6.2)
US Private Equity Index 14.3 23.5 12.3
W. Europe PE Index 18.4 31.2 27.0
MSCI EM 17.3 26.0 22.8
S&P 500 9.2 10.9 3.61Cambridge 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
EMPEA Presentation to AVCA17November 7, 2005
Leading to Increase in FundraisingLeading to Increase in Fundraising
0
2
4
6
8
10
12
14
Asia (exJapan)
CEEurope &
Russia
LatinAmerica
MiddleEast &Africa
Total
2003
2004
2005 ytd
US$ B
illion
Source: EMPEA, Liberty Global Partners
Emerging Markets Private Equity Fundraising Snapshot, September 2005
EMPEA Presentation to AVCA18November 7, 2005
Emerging Markets Private Equity Fundraising Snapshot, September 2005
Source: EMPEA, Liberty Global Partners Estimates
Increase in Fundraising Increase in Fundraising
Funds Raised 2004 (US$ mm)
Funds Raised 2005 thru Aug
(US$ mm)
Estimated # of Funds in Market
Est. Total Currently
Solicited (US$ mm)
Asia (ex Japan/Aust) 2,799 8,921 79 18,532
China (699) (1,809) (30) (5,155)
India (1,100) (1,708) (15) (2,157)
Pan/other Asia (1,000) (6,035) (34) (11,220)
CEE/Russia 629 1,556 10 1,569
Latin America 1,020 1,121 10 1,381
Africa/Middle East 545 520 7 1,490
EM Total 4,993 12,118 106 22,972
Funds of FundsNA 370 9 2,074
EMPEA Presentation to AVCA19November 7, 2005
IV. Expected Future TrendsIV. Expected Future Trends
Expect a larger annual percentage to flow to China and India Through 2004, India and China accounted for an estimated 22%
of PE investments in emerging markets (1)
Beyond the BRICs 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
Gross returns (1) through 2004 from all investments in:
Russia – 14% India – 17% China – 3% South Africa – 11% Korea – 16% Czech Republic – 28.5%
1 Source: Cambridge Associates, Proprietary Database. Includes EM investments made by EM and non-EM funds in CA Database.
EMPEA Presentation to AVCA20November 7, 2005
Expected Future TrendsExpected Future Trends
Emergence of Secondaries and Fund of Funds for EM
Greater demand from LPs for: Strong corporate governance Best practices in fund management (reporting,
valuation) Demonstrated track records Reliable regulatory and legal frameworks
EMPEA Presentation to AVCA21November 7, 2005
Thank You!
Sarah AlexanderExecutive Director
Emerging Markets Private Equity Association
P.O Box 33606Washington, D.C. 20033
+1 (202) [email protected]
www.empea.netEMPEA is a nonprofit 501(c)(6) organization