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Quarterly Review a Publication of the Emerging Markets Private Equity Association ● Volume V, Issue 1, Q1 2009 March 2009

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Quarterly Review a Publication of the Emerging Markets Private Equity Association ● Volume V, Issue 1, Q1 2009 March 2009 Emerging Markets Private Equity Quarterly Review A Publication of the Emerging Markets Private Equity Association ● Volume V, Issue 1, Q1 2009 March 2009 President’s Viewpoint In This Issue Emerging markets continue to feel the shockwaves of the global financial cri- sis. Net private capital flows are at their lowest level in six years; the World FEATURES Trade Organization predicts a global drop in trade volume of 9% in 2009, the largest decline since WWII; exports are down 25%–45% in various markets; the strengthening dollar has increased import costs and reduced dollar-based “Jump Ball” for Limited LP returns; and, although it’s since recovered somewhat, the MSCI Emerging Mar- Capital: Assessing Historical kets index lost 54% of its value in 2008. These developments have investors Returns in Times of Crisis 3 questioning whether to maintain allocations to emerging market managers and pose challenges for GP portfolios across the globe. Now More than Ever: The results of a just-released EMPEA/Coller Capital LP Survey suggest, however, The Importance of that the private equity industry in the developing world will withstand the global Corporate Governance 10 shockwaves as LPs continue to see attractive investment opportunities in these markets (see the full results on EMPEA’s website). The record-breaking US$66 billion raised for EM PE in 2008 is unlikely to be replicated in 2009. Defying the Downturn? Fundraising and Investment As Eric Johnson of Cambridge Associates writes in our feature guest article, LPs Strong in 2008 17 still maintain a long-term outlook on the asset class, but will be picking the high- est quality GPs with strong track records. Based on Cambridge’s performance benchmark series, Eric provides an analysis of how emerging market managers’ performance over the past decade stands up to public market alternatives as well NEWS AND Data as PE in the West. He challenges the oft-quoted thesis that post-crisis vintages yield better performance, suggesting average performance of EM PE funds is un- derwhelming, but that top quartile managers continue to beat the benchmarks. Member and Industry News 22 Risk assessments for PE in general, and emerging markets in particular, have ris- en, and corporate governance issues are paramount in the minds of LPs. Our arti- Funds in the Market 24 cle on Corporate Governance underscores how transparent, open and consistent communication with LPs about underlying company performance and outlook is Notable EM PE Exits & IPOs 25 critical in these times, as is vigilance in managing risk with respect to fraud. The good news for our industry is that emerging markets are not strangers to EMPEA Members 26 economic crises, and there is a solid group of managers that have emerged from prior economic meltdowns with strong investor returns and new capital under management. The depth of the industry compared to just a decade ago Featured Events 28 is remarkable and provides a solid base for weathering the economic storm. Many emerging economies continue to grow, albeit at a slower rate, and the less frequent use of debt in transactions means companies are better poised to ride out the storm. From May 12–13 in Washington, DC, we will once again serve as co-host with the IFC to the world’s largest global PE conference. We have lined up an extraor- dinary program to allow all of you to explore these and other industry challenges and opportunities with leading industry players, global economists and thought leaders. I hope to see you there. Sarah E. Alexander, President Emerging Markets Private Equity Association 1055 Thomas Jefferson St. NW, Suite 650, Washington DC 20007 Tel: +1.202.333.8171 www.empea.net About EMPEA The Emerging Markets Private Equity Asso- ciation (EMPEA) is an independent, member- Executive Editor based global industry association that pro- Sarah E. Alexander motes greater understanding of and a more favorable climate for private equity and ven- Editorial Director ture capital investing in the emerging markets Jennifer Choi of Africa, Asia, Central/Eastern Europe and Russia, Latin America, and the Middle East. Writing and Research Alexander Adrian EMPEA was founded in 2004 with the be- Holly Freedman lief that private equity can be a critical driver Harrison Moskowitz of economic growth in emerging markets while simultaneously generating strong re- Production turns for investors. Blue House www.bluehouse.us In support of its mission, EMPEA: • Researches, analyzes and disseminates © 2009 Emerging Markets Private Equity Association authoritative global information on emerg- ing markets private equity; All rights reserved. Emerging Markets Private Equity Quarterly Review is • Convenes meetings and conferences a publication of the Emerging Markets Private Equity Association. Neither around the world; this publication nor any part of it may be reproduced, stored in a retrieval • Offers professional development programs system, or transmitted in any form or by any means, electronic, mechanical, including monthly Webcasts; and, photocopying, recording, or otherwise, without the prior permission of the • Collaborates with stakeholders from Emerging Markets Private Equity Association. across the globe. Subscriptions EMPEA’s members represent more than 80 For subscription or single issue purchase, visit www.empea.net or email empea@ countries and over $500 billion in assets un- empea.net. Subscription for one year (4 issues) is US$495. EMPEA members der management. receive the Emerging Markets Private Equity Quarterly Review for free. Advertising Opportunities The Emerging Markets Private Equity Quarterly Review offers readers an analytical and factual look at private equity investing in emerging markets. The Become a Member Quarterly Review features include regional and country market analysis, an overview of current trends in the industry, benchmark data from Cambridge The Emerging Markets Private Equity Asso- Associates, and guest articles from leading thinkers and practitioners. ciation is the only global body that represents Its readership comprises a broad array of private equity fund managers, the growing industry of emerging markets institutional investors, service providers, and other key stakeholders in the private equity. As a leading global player, EM- industry from more than 80 countries. PEA offers features that meet the needs of a broad range of institutions active in emerging Advertising opportunities are available for upcoming issues. For more markets, including General Partners (GPs), information, please contact Cristiane Nascimento, Communications and Limited Partners (LPs), business associations, Marketing Manager, at [email protected] or +1.202.333.8171. service providers, multilateral and academic institutions, and governmental bodies. EMPEA 1055 Thomas Jefferson Street NW, Suite 650 For more information on how to become a Washington, DC 20007 USA member visit www.empea.net or contact Tel: +1.202.333.8171 • Fax: +1.202.333.3162 Farzana Hoque at [email protected] or www.empea.net +1.202.333.8171. CORRECTION The June 2008 Quarterly Review article about ESG standards (Vol. IV Issue 3, Q3 2008, Responsible Investment in Emerging Markets PE: Is Now the Time for ESG Stan- dards?) mistakenly reported that Société Générale was not a signatory to the Equa- tor Principles. In fact, Société Générale adopted the Equator Principles in September 2007, and became a member of the initiative’s Steering Committee in May 2008. The editorial staff of the EMPE Quarterly Review regrets the error. 2 EM PE Quarterly Review Vol V Issue 1, Q1 2009 “Jump Ball” for Limited LP Capital: Assessing Historical Returns in Times of Crisis Contributed article by Eric Johnson, Cambridge Associates LLC in the 1990s. As such, there are limits to what the histori- cal benchmark data can tell us. Indeed, even the more devel- The ongoing financial crisis has severely depressed the prices oped private equity markets in the U.S. and Western Europe, for equity assets around the world, whether publicly or pri- although they have longer histories, are still relatively young vately held. The prospect of declining entry valuations has led asset classes. The difficulties in drawing conclusions from the some emerging markets private equity investors to state that historical returns are exacerbated by the rapid changes that the 2009 and 2010 vintage years are likely to represent an “op- have taken place in emerging markets and in the private eq- portunity of a lifetime” for those limited partners (LPs) with uity manager universe over the last five to ten years. These the courage to commit new capital to these markets. How changes, along with the depth and breadth of the current true is this likely to be? And compared to what, given the other crisis, guarantee that in many ways this crisis will be differ- investment opportunities that are available elsewhere? ent. Nevertheless, a review of the performance history of private and public investments is a necessary starting point Cambridge Associates has long believed that there are impor- for those attempting to understand whether allocations to tant strategic reasons for investors to have meaningful expo- emerging markets private equity are likely to meet investors’ sure to the growing economies of the emerging markets. For objectives in the future. the typical investor, this exposure has come primarily through public stocks. A growing number of investors have supple- mented their stock allocations with commitments to private Total distributions from equity funds, usually with the objectives of outperforming the crisis and post-crisis stocks and/or increasing their exposure to portions of emerg- vintages 1997 to 2000 only barely ing economies that are difficult to access via the public mar- kets. As the crisis unfolds, those making the case in favor of exceeded 1.0x... The top quartile the current opportunity in emerging markets private equity breakpoint for this group, however, frequently state that many of the best private equity vintage was a respectable 18.7%, showing years have been those following previous recessions or cri- ses.
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