LP emerging market commitments expected to fall this year

A new survey shows how LPs have adapted in light of the pandemic, with overall investor commitments to emerging market private funds expected to decline this year.

For its latest report, the Emerging Market Private Equity Association (EMPEA) surveyed 109 unique institutional investors from February to April 2020 and gathered LP sentiment on private capital investments in emerging markets.

EMPEA’s Global Limited Partners Survey 2020 classifies emerging markets as all countries outside the US, Canada, Western Europe, Israel, Japan, Australia and New Zealand. The scope of private capital includes all illiquid alternative strategies such as private credit, private equity, venture capital, infrastructure and real estate.

The survey found that fewer global LPs might be willing to make new commitments to emerging market-focused private capital funds over the next two years.

The share of 2020 survey respondents planning to increase their private capital fund commitments in the near term has declined to 30 percent from 52 percent in EMPEA’s 2019 survey. “The pipeline of illiquid investments coming into Q1 has been put on ice,” said a pension fund source cited in the report.

The LPs’ responses suggest that pensions and funds of funds are most likely to decelerate the pace of deployment in emerging markets over the next two years.

Conversely, 49 percent of respondents said they plan to increase commitments over the next three to five years, thus pointing to a potential rebound by the time the pandemic abates and emerging economies recover.

The survey also finds that family offices, foundations, endowments and trusts are among the types of LPs looking to expand private capital fund commitments to emerging markets, both in the short and medium terms.

European institutions are most likely to increase new commitments or maintain deployment pace over both the short and medium term.