Fundraising figures for 2008 released recently by the Emerging Markets Private Equity Association (EMPEA) show a record-breaking year for the emerging markets (see page 14).
Top pick was emerging Asia, which represented 60 percent of total funds raised, or $39.7 billion of $66.5 billion, due in large part to the twin pillars of China and India, which received $14.5 billion and $7.7 billion in dedicated funds respectively.
In the year these funds were raised, the developed markets went from bad to worse: they started 2008 with credit crunch gloom and ended in full blown recession. For Asian markets, however, the trajectory of the economic crisis has been slower – it may seem strange now, but in the first quarter of 2008, people were still debating whether the decoupling theory was fact or myth.
Once the decoupling theory had been debunked, the rest of 2008 saw a gradual unravelling of confidence in the region's imperviousness to rest of the world's economic pain.
This decline in confidence – as the EMPEA fundraising figures show – did not seem to filter through to LPs who committed an increased portion of their private equity dollar to Asia. In fact, another EMPEA survey, carried out in October and November 2008, suggested LP faith in the emerging markets as a whole remained intact; in it some 52 percent of institutional investors expressed the belief their emerging market private equity fund portfolio would be less negatively impacted by the current economic downturn than their developed market fund portfolio.
Perhaps though, coverage of the Asian markets in the last month has given these LPs pause for thought.
Following the International Monetary Fund's January revision of its World Economic Outlook, in which it downgraded its estimates for growth across the Asian region from 4.9 percent to 2.7 percent, the mood has turned increasingly bearish.
Top of Asia's woes is its over-dependence on exports. However, this has been exacerbated by a slowdown in domestic consumption, which was being relied upon to compensate for the drop-off in exports – as witnessed in the last two Letters from Shanghai, which have focused on this very topic (see page 6).
It is clear Asia cannot recover the incredible rate of growth witnessed over the last few years outside the context of broader global economic recovery. Yet any US and European LPs now anxiously wondering whether they were wise to invest so much faith – and money – in Asian private equity can take heart in the IMF's prediction for a bounce back to a growth rate of over 5 percent in 2010, and the conviction of those on the ground. As 3i's new head of Asia, Anil Ahuja, told
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