Emerging market GPs see slower fundraising

Although panelists at the IFC’s 10th Global Private Equity Conference in Washington DC are sanguine about their deal flow in the emerging markets, some spoke of seeing a slowdown in the pace of fundraising.

Although limited partners are more interested in the emerging markets than ever, that might not be enough to ward of a fundraising slowdown, said general partners at the International Finance Corporation’s 10th Global Private Equity Conference in Washington DC yesterday.

During the opening panel of the conference, “Emerging Markets Private Equity in 2008,” participants agreed that the frenetic pace of fundraising that characterised 2007 has already begun to slow.

Steven Cowan, a managing director at PCGI, said that LPs are facing a “shrinking denominator” effect. Because of declines in global public equity markets, their capital bases are shrinking to the point where they find themselves overweight in private equity. A number of LPs, Cowan said, are already looking at their 2009 allocations and deciding which GP groups not to re-up with.

David Wilton, a manager at IFC, said he’s seen a few funds recently trying to wrap up fundraising early, to lock down investors before “they got cold feet”. He added that the IFC was going through a “radical refocusing” of its own private equity allocations.

Warburg Pincus managing director Joseph Schull said that his firm was lucky to have wrapped up its $15 billion fund when it did. If Warburg had not started fundraising in early 2007, and locked down the majority of its capital by mid-year, it might not have been able to procure such a sum.

“We definitely would have had more difficulty if we had started later,” said Schull.

On a more positive note, all the panelists noted that they hadn’t seen a slowdown in their deal flow in the emerging markets. In fact, post-credit crunch, playing field conditions have improved in their favour, panelists said.

The abrupt departure of hedge fund competition in the private equity space, as financing dried up last year, is a boon for private equity managers, said Cowan.

“Competition from that class will be much more benign in the future,” he said.

The panelists also noted that they were now seeing an improving exit market, as emerging market companies are receiving growth premiums rather than being discounted for risk.