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 crisis. 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 emerging 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 historical 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 markets. 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 crises. Certainly, entry prices have fallen during the current and that a subset of managers were able previous downturns, creating more attractive opportunities to generate quite good returns.” than when entry prices have been high. Yet the same factors causing entry valuations for new private equity investments to decline during crises have also led to precipitous falls in the As an “asset class,” the aggregate returns over the last ten prices and valuations of emerging markets stocks, which are years for emerging markets private equity have been unin- in stiff competition (along with other asset classes) for LPs’ spiring in comparison to the returns from emerging markets limited capital. stocks. For the 10-year period through 9/30/08, emerging markets private equity returned 8.3% annually, versus 14.8% What lessons can we learn from the historical returns for for the MSCI Emerging Markets Index [see Exhibit 1]. Simi- emerging markets private equity during and following previous larly, stocks outperformed private equity in each of the three crisis periods, especially in relation to the returns from public main emerging markets regions for which we have sufficient stocks? What can other more developed markets, with longer funds for comparison. On a brighter note, emerging markets histories and deeper manager universes, tell us about the abil- returns (both public and private) were well above the 3.1% ity of LPs and GPs to extract the outperformance that theory annualized gain of the S&P 500 Index over this period. The suggests should be available from manager skill and the “il- returns for the top two quartiles of emerging markets funds liquidity premium” associated with private investments? How were much better, 18.9% over the 10-year period, beating should investors think about accessing the current investment the public emerging markets benchmark by 4.1% annually. opportunities in emerging markets, either through public mar- Taking out the top-quartile returns and looking only at the kets or private equity? A review of the historical data will sug- second quartile managers, annual returns were 14.2%, es- gest that the answers to these questions are perhaps not that sentially in line with the stock index. different from those in other private equity markets, where investing with the best managers has paid off well, but where When making such 10-year comparisons now and in the fu- large portions of the manager universe have subtracted value ture, investors should be wary of “end-point” sensitivity. For from their LPs’ portfolios compared to investing in an index of example, comparisons of public and private investments as public stocks. of 12/31/08 will drop the public stock returns from the fourth quarter of 1998 and add the fourth quarter of 2008. Moving the measurement period forward by one quarter causes the Emerging Markets Private Equity Returns 10-year annualized return for the MSCI EM Index to fall from 14.8% (as of 9/30/08) to 9.3% (as of 12/31/08). This is quite Despite its healthy growth over the last five years, emerg- a large change, although still not likely sufficient to drop the ing markets private equity remains a young asset class, with stock index returns below those for emerging markets private most of the history of institutional-quality funds beginning only equity over that same period, once the latter are available. Continued on page 4

EM PE Quarterly Review Vol V Issue 1, Q1 2009 3 Assessing Returns, continued from page 3

Exhibit 1: Comparison Of Emerging Markets Private Equity End-To-End Returns (as of September 30, 2008) Annualized Returns (%) Asset Class One Year Five Years Ten Years Emerging Markets Venture Capital & Private Equity -7.2 19.7 8.3

Emerging Markets VC & PE: Top Half Only -0.8 33.6 18.9

Emerging Markets VC & PE: Second Quartile Only -8.7 24.4 14.2

Asian (Ex Japan) Private Equity Index -8.7 13.8 6.9

Emerging Europe Private Equity Index 0.4 40.0 19.9

Latin America & Caribbean Private Equity Index 9.4 18.0 1.0

MSCI Emerging Markets -33.0 19.1 14.8

MSCI Emerging Markets: Eastern Europe -33.0 19.0 23.7

MSCI Emerging Markets: Asia -39.7 14.2 12.9

MSCI Emerging Markets: Latin America -21.1 32.9 20.4

MSCI World Index -26.1 7.3 3.8

S&P 500 -22.0 5.2 3.1

Sources: Cambridge Associates LLC Non-Marketable Alternative Assets Database, Standard & Poor’s, MSCI Inc., Thomson Datastream, The Wall Street Journal, and Wilshire Associates, Inc. MSCI data provided “as is” without any express or implied warranties. Notes: Returns are end-to-end pooled means net of management fees, expenses, and carried interest. The pooled means represent the end-to-end rates of return calculated on the aggregate of all cash flows and beginning and ending market values as reported by the General Partners to Cambridge Associates LLC in their quarterly and annual audited financial reports. Emerging Europe includes Eastern Europe and Russia.

Vintage Year and Top Quartile Analysis breakpoint for emerging markets funds of earlier crisis vintage years from 1998 to 2002 ranged from 16.4% to 20.6%. Of par- An analysis of vintage-year returns provides further evidence that ticular note is the 1998 vintage year, in which a disproportion- the top-performing managers in emerging markets have been ately large number of emerging markets funds are among the able to generate returns that are attractive on a stand-alone basis, top quartile of all ex-U.S. developed and emerging markets funds and in many cases, in comparison to returns from developed U.S. in our database, showing that a handful of 1998 funds wound up and Western European markets [see Exhibit 2]. The top-quartile very successfully capitalizing on the post-crisis environment.

Exhibit 2: Comparative Top Quartile Irrs Over Time: U.S., Western Europe, and Emerging Markets Private Equity (as of September 30, 2008) 50 43.2 40

30 20.6 20.4 20 15.0 16.4 21.4 18.7 19.2 12.7 10 10.5 0 N/A

IRR Net to Limited Partners (%) ■ W. Europe PE ■ US PE ■ EM PE –10

–20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Vintage Year Continued on page 6

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Exhibit 3: Combined Vintage Year Statistics (as of September 30, 2008) Total Pooled Arithmetic Upper Lower Dist./ Value/ Years and Region Mean Mean Median Quartile Quartile Paid In Paid In 1993–1996 Emerging Markets 2.5 2.4 0.4 9.1 -2.8 1.10 1.16 1997–2000 Emerging Markets 8.1 7.8 8.1 18.7 -2.3 1.06 1.44 Asia ex-Japan 6.4 5.3 4.3 13.6 -4.0 0.99 1.30 Central/Eastern Europe 18.9 14.7 18.0 19.9 8.1 1.93 2.46 Latin America -0.8 0.0 1.1 8.8 -4.3 0.76 0.95 2001–2003 Emerging Markets 19.9 17.2 13.1 20.4 1.6 0.72 1.57 2004–2007 Emerging Markets 9.5 1.4 -2.0 14.2 -13.9 0.13 1.11

Note: Internal Rates of Return and multiples of capital to LPs are net of fees, expenses, and carried interest.

When reviewing these and other top-quartile analyses (as well total value/paid-in multiple for the entire group of funds was as when evaluating new potential commitments), investors 1.44x, of which 0.38x remained unrealized. Total distributions should be aware of how individual funds can move in and out from this group only barely exceeded 1.0x despite the exit op- of the top quartile over their lifecycle. For example, investors portunities in recent years from one of the strongest bull mar- in 2003 reviewing the interim returns for emerging markets kets in emerging markets history. The top quartile breakpoint funds as of 12/31/02 would have seen a majority of different for this group, however, was a respectable 18.7%, showing funds in the top quartile of the 1998 vintage year than is cur- that a subset of managers were able to generate quite good rently in the top quartile for that vintage year. Whereas the returns. For the relatively smaller number of funds that were total value/paid-in multiple for the current top quartile was 2.6x raised from 2001 to 2003, during the global downturn, the top as of 9/30/08, those funds which were in the top quartile at quartile and median returns were somewhat better, 20.4% the end of 2002 have through 9/30/08 produced a total value and 13.1%, respectively. The total value/paid in multiple of multiple of only 1.3x. 1.57x was also better for these funds, although only 0.72x had been distributed. It is difficult to provide regional vintage-year comparisons because of the small number of funds in each vintage year Since the Cambridge database includes the cashflows in most emerging markets regions. To help overcome this associated with individual company-level investments, we are problem, we have aggregated by region the funds from four also able to look more closely at whether deals concluded in vintage years, 1997 to 2000, that span the Asia, Russia, and particular post-crisis years have outperformed those made dot.com crisis [see Exhibit 3]. We have also shown the ag- in other years, regardless of which vintage year’s fund made gregate returns for funds formed in the years before and after each investment [see Exhibit 4]. Reviewing the data in this this period. fashion also does not show a particularly strong systematic outperformance by companies that received their initial With the possible exception of the Central/Eastern Europe re- investments in 1997, 1998, 1999, or 2000. In fact, it is only gion, aggregated data from the 1997 to 2000 vintages does in the calendar years following the breaking of the Internet not appear to support the conclusion that investing during cri- bubble where the annualized returns for new deals in the sis and post-crisis years was overwhelmingly profitable for the emerging markets begin to look particularly attractive. This majority of private equity investors. The median return across pattern is generally consistent with the data for Western all emerging markets funds for those four years was 8.1%. The Europe and the U.S., where returns for companies receiving

Exhibit 4: Pooled Gross Mean of Companies Receiving Initial Investment by Year (As of September 30, 2008) 1997 1998 1999 2000 2001 2002 2003 2004 Emerging Markets 9.5 6.8 10.6 5.4 19.8 35.9 40.2 52.8 Eastern Europe/Russia 10.0 23.9 11.5 13.2 25.0 45.9 60.5 105.1 Asia (Ex Japan) 5.5 16.9 11.9 2.8 18.7 34.1 23.2 44.7 Latin America 14.2 0.3 7.3 4.0 18.4 17.4 19.6 45.2 Western Europe 37.3 14.9 19.2 13.1 28.5 45.7 47.6 49.0 United States 27.4 10.9 7.6 7.6 20.5 35.9 33.0 39.9 Note: Dollar-weighted IRRs of 1508 Emerging Markets, 3765 Western Europe, and 5339 U.S. companies (excluding U.S. Venture Capital) receiving intial investment between 1997 and 2004.

Continued on page 7

6 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Assessing Returns, continued from page 7 their initial investment in 1998 through 2000 are lower than The chances are that a good for any other years from 1997 through 2005. Some portion of these observed return differentials is likely related simply number of [the funds best to the long holding periods for the earlier emerging markets positioned to exploit opportunities] investments prior to the return of the strong exit environment will be those formed in 2006, 2007 in 2004 and later. and 2008. Although they deployed Benchmarking Against Public Markets a portion of their capital when valuations were high, many have yet As another comparison to these various private equity returns and vintage year multiples, note that public stock investors in to draw down substantial capital.” emerging markets were able to achieve multiples of capital of 3x to 4x through 6/30/08 simply through an investment in the MSCI Emerging Markets Index (see Exhibit 5). Even higher How Best to Exploit the Current multiples could have been earned using the Emerging Europe or Opportunity? Latin America regional indices. These multiples on public stocks were high even on investments begun at such an apparently Current valuations suggest that emerging markets are indeed inopportune time as January 1, 1998 (prior to the Russian “on sale,” with adjusted valuation levels for stocks that have crisis). Indeed, despite the rout in the third quarter of 2008, an only been seen near the bottoms of previous crises. The fol- investor could still have sold such investments in September at lowing Exhibit shows historical valuation levels for the MSCI multiples of capital that remained quite attractive. Emerging Markets Index in terms of Return-on-Equity (ROE)- Adjusted P/E Ratios, which smooths out the impact of earn- Although a direct comparison is not completely fair because of ings volatility. Note that low valuations (i.e., cheap stocks) in the timing of cash flows in and out of private equity funds, it August 1998, September 2001, and March 2003 have subse- is worth noting that 79% of the emerging markets funds in the quently been followed by strong returns, culminating in the 1998 to 2000 vintages had a total value/paid-in multiple less than peak valuations of October 2007 [see Exhibit 6]. The sharp 2.0x as of 9/30/08, and 88% had distributed less than 2.0x by that price declines during the last three quarters have again brought date. The percentage of funds in these years that had total value valuations down to what appear to be attractive levels (at least or distributed multiples over 3.0x was well below 5%. For the from an intermediate- to long-term perspective) of more than younger 2001 to 2004 vintage years, the proportion of funds with one standard deviation below their long-term average. multiples less than 2.0x is similar or even higher. Investors should not, however, jump to the conclusion that these figures are simply How should investors exploit these potentially attractive cur- a function of the emerging market industry’s relative youth or rent opportunities in emerging markets? Market timing in pri- inexperience. The comparable statistics for U.S. private equity’s vate equity strategies is problematic because of the consider- 1998 to 2000 vintage years are quite similar: 78% had a total able delays between when capital is committed and when it value multiple under 2.0x and 88% had distributed less than 2.0x is ultimately deployed, and the related uncertainties regarding through 9/30/08. entry and exit valuations and timing. Instead, investors should focus on rigorous manager selection and careful program construction. The latter includes an emphasis on relatively steady Exhibit 5: Investment in the MSCI Emerging vintage-year diversification rather than large market timing Markets Index bets, while perhaps adjusting commitment sizes on the mar- gins during periods where fundraising is particularly strong or Initial weak. Invest Date AACR (%) Multiple AACR (%) Multiple The current crisis again shows the potential benefit of such a January 1, to 6/30/08 to 6/30/08 to 9/30/08 to 9/30/08 disciplined, steady approach. If it does turn out that vintage- 1998 12.5% 3.4 8.9% 2.5 year 2009 and 2010 deals are highly attractive, which funds are likely to be best positioned to exploit these opportunities? 1999 17.4% 4.6 13.2% 3.4 Somewhat ironically, the chances are that a good number of them will be funds formed in 2006, 2007, and 2008 (which 2000 12.7% 2.8 8.4% 2.0 were raised and deployed a portion of their capital when valua- 2001 20.2% 4.0 14.8% 2.9 tions were high). Many of these funds have yet to draw down substantial capital: the 2007 vintage year emerging markets 2002 24.1% 4.1 17.6% 3.0 funds in our database, for example, had drawn down only 31% of their capital through 9/30/08. Given the slowdown in 2003 30.6% 4.3 22.2% 3.2 fundraising once the crisis fully hit, it is less clear just how effectively those LPs seeking to exploit the current low valua- 2004 25.5% 2.8 16.1% 2.0 tions will be able to do so via new funds. Many funds may not Sources: MSCI Inc. and Thomson Datastream. MSCI data provided “as is” without any close until 2010, and will be committing most of their capital express or implied warranties. AACR = average annual compounded return. in 2010, 2011 and 2012. While it is possible that valuations

Continued on page 8

EM PE Quarterly Review Vol V Issue 1, Q1 2009 7 Assessing Returns, continued from page 7

Exhibit 6: MSCI Emerging Markets (ROE)—Adjusted P/E Ratios (Dec. 31, 1995–Feb. 28, 2009) 30.00 October 31, 2007 ■ ROE Adj. ■ Mean ■ Mean + 1 Stdev ■ Mean – 1 Stdev 25.00 25.5 January 31, 2006 March 31, 2000 21.4 20.00 July 31, 1997 18.1 February 29, 2004 16.2 17.1 15.00

10.00 September 30, 2001 March 31, 2003 February 28, 2009 11.2 11.1 5.00 August 31, 1998 10.4 7.8 0.00 1995 1998 2001 2004 2007 Sources: MSCI Inc. and Thomson Datastream. MSCI data provided “as is” without any express or implied warranties. will be even more attractive then, those investors looking for a It is less clear how effectively more tactical opportunity to deploy capital at 2009 prices may well opt to invest via public stocks. LPs seeking to exploit the current low valuations will be Timing is even more of an issue for funds of funds that are able to do so via new funds, which raising new vehicles to exploit the current opportunity. Many of their underlying commitments to new funds will not occur [may] not be committing most of until 2010, 2011 or 2012, with each of those funds commit- their capital [until] 2010, 2011, ting to underlying investments over the subsequent several and 2012. While valuations may be years. As an example of the slower pace inherent in investing through funds of funds, vintage year 2007 funds of funds even more attractive then, investors in the Cambridge database (including those investing across looking to deploy capital at 2009 all private equity geographies) had called only 17.7% of their prices may well opt to invest via commitments through 9/30/08. The difficulties for new funds of funds in exploiting the current opportunities could become public stocks.” even more acute if a number of their target funds postpone fundraising to focus on their existing portfolios. Investors con- sidering funds of funds should therefore view these invest- case for the 1998 vintage year example), much less of future ments as part of a long-term program for building exposure funds. LPs should therefore continue to consider private eq- via steady vintage-year diversification, rather than as a more uity commitments only when they are able to develop a strong tactical allocation. conviction that their fund managers will be able to generate sufficient outperformance relative to public stocks to justify Whether they invest directly or via funds of funds, LPs should the fees and illiquidity associated with these investments. continue to emphasize rigorous manager selection and due diligence. While an illiquidity premium for investment in private Conclusion equity may make sense in theory, the history of the industry to date suggests that GPs and LPs as a whole have not neces- The turning point in the markets during the third quarter of sarily been very good at consistently extracting that premium. 2008 provides an excellent time to stop and review the perfor- (This is by far not an issue unique to emerging markets, how- mance history of the emerging markets private equity indus- ever.) LPs should participate in emerging markets private eq- try. Although aggregate private equity returns, up through the uity only if they have good reason to believe that they have the onset of the crisis, have trailed those of common stocks, the resources, skills and access to commit a substantial portion of best emerging markets manager have beaten the index and their programs to future top performing managers. This is no have been competitive with top performers in other markets. small order, given that the industry remains relatively young Nevertheless, LPs would have needed to be very successful in and there are relatively few managers who have even been their manager selection and program construction to have had around long enough to demonstrate sustained “persistence” sufficient exposure to enough of these top performing manag- of realized outperformance over the course of multiple funds. ers to outperform the public markets, which generated strong Interim top quartile rankings may prove to be misleading indi- multiples through 9/30/08. The extremely large public market cators even of the performance of the current fund (as was the declines beginning in September, the poor environment for

Continued on page 9

8 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Assessing Returns, continued from page 8 exits, and the uncertainties regarding valuations of unrealized Cambridge Associates Emerging Markets Benchmarks investments will complicate comparative evaluations of newer vintage years for many years. It is simply too early to say Cambridge Associates (CA) has been preparing benchmark statistics whether enough of the managers in the more recent vintages on the private equity industry for almost two decades in support of its were sufficiently disciplined in their deployment of capital to advisory work for over 850 institutional and family office clients. CA generate long-term returns ahead of the public equity mar- tracks the returns of more than 3,790 U.S. and non-U.S. funds across kets, many of which were trading at high valuations prior to a range of private investment strategies, including data on more than the crisis. Although there will likely continue to be substantial 55,000 underlying company-level investments. CA’s emerging mar- write-downs as 2009 progresses, only when the exit markets kets private equity and venture capital index includes performance reopen and there are substantial opportunities for realizations data on 284 funds and their more than 3,100 underlying company- will investors be able to tell whether the capital raised during level investments, representing total commitments in excess of the recent fundraising boom in emerging markets has outper- $97.8 billion dating back as far as 1986. The emerging markets index formed the public markets and met LPs’ objectives. ■ includes not only those funds in which CA’s clients have invested, but also a range of funds in which no CA clients are invested. CA cooper- This article reflects the personal views of the author, and not ates closely with a range of development finance institutions (e.g., necessarily the views of the Emerging Markets Private Eq- IFC, EBRD, OPIC, FMO) and EMPEA to encourage additional manag- uity Association or Cambridge Associates LLC. The views ers to join the database, which is open to all institutional-quality fund expressed in this article are for informational purposes only and managers. CA provides a free detailed report of global private equity should not be considered as investment advice or a recommen- benchmarks to participating GPs. (Interested GPs may contact CA for dation of any particular security, strategy or investment product. further information at [email protected]).

Are You In? Emerging Markets Private Equity Association Membership Directory 2009/2010

The 2009/2010 EMPEA Membership Directory will be a The Directory will offer: comprehensive guide to leading fund managers, limited • Profiles of fund managers, LPs, service providers and partners, service providers and other organizations active other organizations active in the industry in emerging markets private equity. • Updated and expanded research statistics on EM PE fundraising trends, investments, and LP interest in the This year’s Directory will feature over 250 organizations and be asset class a testament to the resilience of the asset class and to the firms • A convenient way to learn about available services and that continue to pursue opportunities in the midst of a challeng- assess new business relationships ing global economic environment. • An easy way to identify EMPEA members by head- quarters, firm type, and fund manager region of activity Join by May 29 to be included! To learn more about the Directory and other EMPEA membership features, please contact Farzana Hoque at [email protected] or +1.202.333.8171. www.empea.net

EM PE Quarterly Review Vol V Issue 1, Q1 2009 9 Now More than Ever: The Importance of Corporate Governance

The most notable emerging markets example of governance failure We try to convey to portfolio to emerge during the current crisis, India’s Satyam Computer Ser- vices reminded many investors of the risks inherent in investing in companies that we’re the money emerging markets. The tally of scandals and collapses will surely behind the GP. We don’t want to mount as more examples of poor performance and bad behavior— manage the company, we just want Warren Buffet’s “naked swimmers”—come to light. GPs and LPs concerned about preserving value have understandably placed gov- them to remember that we’re an ernance high on the agenda. active investor and we want to be kept apprised of what’s happening.” The link between corporate governance and performance is sup- ported by a growing body of research, much suggesting that private —Alessandra Pasian, EBRD equity-backed firms in particular claim a governance advantage. Re- cent studies by the World Economic Forum and McKinsey & Co. found that PE-owned firms are on average better managed and Fund Governance in Changing Times claim more productive Boards than do their non-PE-backed counter- parts. [See Exhibit 1] The catalytic role played by Development Finance Institutions (DFIs) in the development of private equity in emerging markets has helped Now more than ever, private equity investors are hoping that the to cultivate an industry culture that emphasizes strong governance. strong corporate governance intrinsic to the PE model will help them navigate the challenging times ahead. Ayaan Adam, who manages the International Finance Corpora- tion’s (IFC) Private Equity and Investment Fund Portfolio, stressed EMPEA hosted a webcast in February featuring panelists from the the IFC’s aim in focusing on fund governance is fundamentally to IFC, Global Environment Fund and Emerging Capital Partners on the make the GP, particularly first-time fund managers, more attractive topic of fund- and investee-level corporate governance.1 Building on to other investors. “Nearly every fund the IFC has looked at, we’re the topics addressed in that webcast, this article explores standards in at the first closing. We try to make the funds more LP friendly and of practice for addressing key governance concerns shared by LPs by doing so, we improve the economics of the fund and everybody and GPs. wins,” said Adam. [See Exhibit 2 for a summary of the IFC’s view of priorities for fund governance.] The efforts of institutions such as the IFC appear to have paid off—seasoned managers are benefiting Exhibit 1: Comparative Effectiveness of Boards from a more diverse investor base and a richer pool of capital. Global (Interviewees’ ratings, 1=poor, 5 = world class) Environment Fund’s CEO Jeff Leonard observed that these newer investors have adopted an increasingly engaged approach to fund Governance (audit, governance similar to that of the DFIs. compliance, risk) “A few years ago, the concept of the LP Advisory Committee (LPAC) Strategic leadership was driven more by the DFIs. Now commercial LPs have embraced the idea of the advisory committee. One challenge is that, especially for US-based institutions, it is important to maintain the legal Performance management distinction between LP and GP. The role of the LPAC is to review fund valuations, investment policies and conflicts of interest. Some Development/ LPs are asking for levels of disclosure that aren’t appropriate from a succession management corporate governance standpoint. As GPs, we have to structure the role of the Advisory Committee carefully and balance that level of Stakeholder engagement,” said Leonard. management

Overall Liquidity and Conflicts of Interest effectiveness The majority of LPs agree that Advisory Committees are taking a 0 1 2 3 4 5 more active role, managing an increasing number of conflicts of interest driven in large part by mounting liquidity concerns, both among the LPs and within the fund. Issues falling within the LPAC purview ■ Boards of private equity portfolio companies that are increasingly coming up for deliberation include: permission ■ Boards of public limited companies (PLCs) to invest a significant portion of the fund in one investee; the trans- fer of assets between funds (cross-fund issues); deadlocked invest- Source: London Business School, MWM Consulting, McKinsey & Co. (August 2008) ment committees; valuation dilemmas; and, co-invesments.

1EMPEA Members can listen to a replay of the Corporate Governance webcast at: https://empea.webex.com/empea/lsr.php?AT=pb&SP=EC&rID=30631572&rKey=30552B2EC77E1B22; a copy of the webcast presentation is available through the EMPEA members-only site. Continued on page 11

10 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Corporate Governance, continued from page 10

Exhibit 2: Fund Governance He continued, “It is important to balance a fair valuation for the new Priorities investors and those that are being diluted with a proper alignment to incentivize the GP to both create value for the new capital while Alignment of economic interest (e.g., carry, clawback, fee maximizing capital preservation for the original investors.” off-sets, deal exclusivity, IC membership) Conflicts of interest Style Drift Transparency (e.g., reporting and valuation standards, ESG, While liquidity issues and conflicts of interest among LPs loom Advisory Committee structures & processes, right to visit co. large, investors are especially concerned with style drift in the cur- management) rent climate. One LP summed up investor worries by saying, “LPs are nervous. For a fund we championed a couple of years ago, those Sanctions (e.g., Key person provisions) assumptions no longer hold. We want to have the data to support Continued “social license to operate” (development mandate) any change in those assumptions, and how will the GP manage through changed circumstances.” Manager Selection Checklist LPs-only Advisory Committee Some LPs may be unwilling to accommodate a GP’s move outside Strong successor fund provisions the fund’s original scope. “To those GPs looking to deviate, we tell them that we didn’t choose them to do something other than their Clear first offer of investment original investment thesis. The 2 & 20-type economics we agreed to Removal provisions (including treatment of carry tail, vesting) were appropriate for conventional buyout investments, not minority deals, PIPEs or debt,” said CPPIB’s Breen. “We expect our GPs to Key man provisions make the type of investments which compelled us to commit to the Minimum 1% GP contribution fund,” continued Breen. None of the GPs have pursued changes in Strong transparency and reporting cases where the CPPIB pushed back against perceived style drift. Source: Ayaan Adam, IFC Alignment of Interest LPs with cash to spend—either through future commitments or We want to know what our additional infusions of equity—are leveraging the more challenging GPs are doing to preserve fundraising environment to ensure that alignment of interests re- value, to increase the runway for the mains strong. portfolio companies.” Some industry observers project that LPs and GPs may begin to re- —John Breen, CPPIB evaluate whether fund sizes are truly reflective of current opportunities, given falling asset prices. In the near term, this could translate to some releases of commitments, as has already happened with John Breen, Head of Private Equity Funds and Secondaries with some Western buyout funds, but has yet to translate to emerging the Canada Pension Plan Investment Board (CPPIB), expanded on markets private equity. For those funds that have sustained sub- the LPAC’s role in working with the GP to address liquidity issues. stantial losses, there are discussions of fee adjustments. “In those instances where there is insufficient room for follow on investments from a fund, there are a range of options to address “We’ll live with the deals we cut, but if GPs want an amendment that liquidity need that should involve the LPAC. These include: fee in their favor, we will probably ask for something ourselves,” said reductions, cross fund investments, an annex or rescue fund,” he Breen. “If a GP asks for an extension of the fundraising period, we noted. might counter by asking for a carry clawback true-up. Or, instead of 65% to 80% offset, we would request a 100% offset of transaction The crisis has put divergent risk appetites among an increasingly fees, to give us more alignment,” he continued. diverse LP base into sharp relief on some advisory committees, where liquidity constraints are beginning to emerge as a source of Disclosure and Transparency conflict. The IFC’s Adam shared an example of an LPAC deadlock, whereby the commercial LPs on a particular fund want to stop the Most LPs we consulted for this article noted that GPs were happy to investment period while the fund still has substantial dry powder, comply with calls for greater disclosure or were voluntarily supplying while two more developmentally minded and long term stable in- more detailed or more frequent reporting. vestors would prefer to step up the investment pace. “We’ve been critical that it would mean moving too slowly. The investment period Alessandra Pasian, Senior Banker with the European Bank for ends in four months and we believe this is a good manager. We Reconstruction and Development (EBRD) Equity Funds Team, don’t want the fund operations stopped,” commented Adam. described the proactive communications strategy increasingly common among LPs. “We are talking with our GPs on an almost Breen expects such issues to become more and more common weekly basis. We also tend to visit portfolio companies more often, as the crisis drags on. “Some LPs have a lot more liquidity in to- whereas previously our contact with company management may day’s market. Managing issues like cross-fund investments and have been limited to the AGM,” she noted. “We try to convey to rescue funds when investors aren’t participating on a pro rata basis portfolio companies that we’re the money behind the GP. We don’t requires an intense focus on proper valuations for the new capital.” want to manage the company, we just want them to remember that Continued on page 12

EM PE Quarterly Review Vol V Issue 1, Q1 2009 11 Corporate Governance, continued from page 11

Even if, and especially if, you’re Exhibit 3: Pre-Investment Checklist/Post-Investment Monitoring not buying control, you need to Pre-Investment invest in a management/ownership Independent agencies to review Board team of great integrity. You’re buying 3 years Board minutes into a company that was created by Board restructuring (including committees; potentially non- another group of people.” executive chair) —Teresa Barger, Cartica Capital Negotiate Board seats (minority and control situations) Verify quality and frequency of financial reporting we’re an active investor and we want to be kept apprised of Post-Investment what’s happening.” She noted that GPs generally welcomed Statement of CG principles for Board endorsement this greater level of involvement and did not seem to view it as an intrusion. Minority Quorum on Boards Performance updates from independent technical advisors LPs are also looking for more frequent and more detailed reporting, many conducting quarterly reviews on their portfolios. Regular interactions with directors beyond quarterly meetings John Breen elaborated on the detail that LPs are seeking from Seats on sub-committees of Boards managers. “We want to know what our GPs are doing to preserve value, to increase the runway for the portfolio compa- Strategic HR: proactive involvement with key hires nies,” he explained. “We are evaluating specific information Internal controls improvements about debt maturity schedules, covenant headroom, expense reduction and other value preservation strategies such as debt Incorporation of ESG into reporting, installation of exchanges and other leverage reduction programs.” compliance officer Shareholder votes with put rights One LP raised concerns about disclosure among funds cur- rently in the market—not just the funds they’re invested with: Source: Emerging Capital Partners (ECP); Global Environment Fund. “In this very challenging fundraising environment, there’s a strong incentive for a GP to show that everything in the pre- decessor fund is under control. Or it may be a timing issue. A Investee-Level Governance: Standards GP not far from a close may defer reporting bad news until the of Practice due diligence by LPs in a new fund is over,” he observed. Emerging market GPs seem to rely on a consistently similar check- Trust Remains Intact list of corporate governance systems and procedures both pre-investment and during the investment period. [See Exhibit 3] Regard- Although LPs are taking measures to ensure transparency less of specific practices, these lists feature some recurring themes, from their GPs and are generally more actively engaged in their namely: 1) structuring the portfolio company Board appropriately ac- funds, by and large the trust between LPs and GPs appears to cording to the shareholder structure and ensuring an active role; 2) remain intact. Thus far, fraud and corruption among emerging implementing strong control procedures, with particular emphasis markets portfolio companies are perceived to be more rumor on the installation of a CFO at the outset of an investment; 3) invest- than anticipated reality. However, LPs are paying greater at- ing only with partners of high integrity and taking a cultural rather tention to corporate governance standards and operating pro- than legalistic approach to governance. cedures at the investee level than ever before. Getting Board Structures and Roles Right Noted Pasian, “We haven’t yet seen the correlation between economic hardship and bad behavior. Some portfolio compa- As Carolyn Campbell, Managing Director and General Counsel of nies are underperforming, and we see our GPs putting extra African investor Emerging Capital Partners, pointed out, for com- people and extra time into supporting those companies. Right panies in Africa as in many emerging markets, Boards are seldom now, GPs are focused more on preserving value rather than independent and often have a unitary structure, comprising both creating value, and that means much more stringent controls executive officers and non-executive directors. According to corpo- in working with management.” rate governance research and ratings agency Governance Metrics International, only 35% of companies in emerging markets have Breen credits CPPIB’s thorough due diligence and solid GP Boards on which at least half of directors are independent, versus relationships with the level of trust they place in their manag- 75% on average in developed countries and 93% in the UK and the ers to handle performance risk. “Twice in the last four months US. [See Exhibit 4] Audit committees are independent for only 29% we’ve conducted very detailed reviews of every significant un- of emerging market companies, versus 90% of companies in devel- derlying portfolio company with our major GP commitments. oped countries. No wonder, then, that reworking the Board and This has enhanced our understanding and allowed us to antici- getting a place at the table is a critical first step for GPs, whether pate what upcoming quarterly NAV numbers to expect.” or not they hold a controlling stake.

Continued on page 14

12 EM PE Quarterly Review Vol V Issue 1, Q1 2009 ADVERTISEMENT

EMPEA proudly announces that Jason Glover, Partner, Clifford Chance LLP, has joined its Board of Directors.

Jason Glover Partner Clifford Chance LLP

EMPEA Board of Directors

Teresa Barger Paul Fletcher Donald Roth Co-Founder, Managing Director & CIO Senior Managing Partner Managing Partner Cartica Capital LLC Actis EMP Global

Thomas C. Barry Jason Glover André Roux Founder & CEO Partner Chief Executive Zephyr Management, L.P. Clifford Chance Ethos Private Equity Ltd.

R. Michael Barth Roger S. Leeds (Chairman) George W. Siguler Senior Managing Director Professor Managing Director & Darby Overseas Investments, Ltd. Johns Hopkins University, SAIS Founding Principal Siguler Guff & Company Antonio Bonchristiano H. Jeffrey Leonard Managing Partner President & CEO Pote Videt GP Investments Global Environment Fund Managing Director Private Equity (Thailand) Co., Ltd., Michael Calvey Luis Miranda a subsidiary of Lombard Investments Co-Managing Partner President & CEO Baring Vostok Capital Partners IDFC Private Equity John Zhao Chief Executive Ofﬁ cer Hony Capital For more information, please go to: www.empea.net Corporate Governance, continued from page 12

Exhibit 4: Cross-country Overview of Governance Guidelines Majority Non-Executive Quarterly Independent Chairman Financial Country Directors (independent) Minimum Committees Statements Primary Guidelines Nominating, Audit, United States Yes No Yes Sarbanes-Oxley Act of 2002 Compensation >20% (Novo Fiscal Committee (similar to Securities and Exchange Commission Brazil Mercado and No Yes Audit) (CVM); Brazilian Corporation Law Level 2) Audit, Renumeration & China > 1/3 No Yes CSRC Guidelines, 2001 & 2003 Appraisal, Nomination Majority Egypt Preferred Audit Yes Egypt Code of Corporate Governance, 2005 non-exec. Ghana > 1/3 Yes Audit No Manual on Corporate Governance, 1999 Murthy Committee on Corporate Governance Guidelines, 2003 & Chandra India > 1/3 No Audit Yes Committee on Auditing and Governance Guidelines, 2002 Nominating, Audit, Private Sector Corporate Governance Kenya Balanced Yes No Compensation Trust, 2003 Planning/Finance Securities Market Law; Mexican Mexico >25% (Nominating, Audit, Yes Corporate Governance Code Governance) Nigeria Balanced Preferred Audit No Code of Corporate Governance, 2003 Poland >50% No Audit Yes WSE Corporate Governance Code, 2002 Strategic Planning, FFMS Corporate Governance Code, Audit, Personnel and Russia > 25% Yes Yes 2002; Russian Joint Stock Companies Remuneration, Settlement Law; Corporate Behavior Code of Corporate Conflicts Majority South Africa Yes Audit, Compensation No King Report on Governance, 2002 non-exec. Commercial Code (CC), Capital Market Law (CML), and Capital Market >1/3 under Yes under Turkey Audit Yes Communiqués (CMC); Capital Markets CMBP CMBP Board Corporate Governance Principles (CMP Principles) Source: Emerging Capital Partners (ECP); International Institute of Finance; OECD.

Most managers will focus on the Board structure before the deal Teresa Barger was formerly the Director of the Corporate Gover- is even complete. Campbell notes that her firm wants to see three nance Department at the IFC and is now the CEO of Cartica Capi- years of Board minutes and hires independent agencies to conduct tal, a fund manager specializing in adding value through corpo- background reviews of the individuals sitting on the Board. “If we rate governance improvements, particularly for listed companies. can’t get three years of Board minutes, we need to see something Barger cautions against thinking of corporate governance solely that would make up for that, that would show consistency and in terms of “ideal” listed-company structures and practices. She coherence in the decisions they’ve made,” said Campbell. noted that GPs with controlling stakes should rightly focus on majority rights, whereas minority investors—still the norm for GEF’s Jeff Leonard emphasizes the importance of ensuring that most EM deals—should seek governance structures that include their role on the Board is an active one. “We take a very hands- protections for minority investors such as tag-along rights, no poi- on approach to the oversight of all companies where we have son pills, provisions for change of control and other elements that big investments—typically we will have two Board seats. The may be more similar to a public company. ‘dot-com’ model of Board participation typical of venture funds in the US during the 2000 time frame is broken. You can’t put inex- Barger illustrated her point by relating a story about an investor perienced individuals on ten different Boards and expect it to be who held 100% of an African bank and felt he could turn around helpful to the relationship with management. We do fewer deals the bank because he had hired the ideal general manager. He asso we have fewer Board seats to fill,” said Leonard. “This is an sembled the best and brightest for the bank’s Board, with an eye important lesson at a time when we all expect that the holding towards eventually listing the company. “I pointed out that he now time from investment to exit is likely to get longer.” faced the possibility that the five independent Board members,

Continued on page 15

14 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Corporate Governance, continued from page 14

If the culture of a company It’s okay to have governance does not appear amenable to for the interim, and to make transparency and change, it is a changes as your situation requires.” major red flag arguing against —Teresa Barger, Cartica Capital an investment.” —Jeff Leonard, Global Environment Fund CFOs know they have an independent responsibility and channel to the Board of directors of the company,” explained Leonard. without his consent, could fire the general manager that he count- Campbell concurs, stating that negotiating the right to replace ed on. I asked why he, as the controlling shareholder, would have the CFO was a lesson learned early on in ECP’s first control given this kind of control to others when it wasn’t necessary, when deals. “We consider the CFO function to be as important as, if listing was still several years off. It’s ‘good’ corporate governance, not more important than, that of the CEO. Without a good CFO but to what end? It’s okay to have governance for the interim, and you can’t ensure good reporting, you can’t ensure coherence to make changes as your situation requires,” she continued. with the stated vision of the company and most importantly your financial reporting is not going to meet your desired goals and The Global Environment Fund includes in its post-investment those of your institutional investors,” she stated. checklist getting the Board’s endorsement of a statement of corporate governance principles created in collaboration with Taking a Cultural Approach, Investing GEF. “Getting the commitment from the Board and manage- Alongside Integrity ment, and having these structures in place serves as a defense Although GPs do everything possible to ensure legal cover, Camp- against arbitrary or capricious actions by governments and indi- bell pointed out that the law can only do so much for a GP. “We viduals,” he explained. rarely agree to local law for a transaction. We look for deals where the sponsor is financially sound—to ensure that if something goes Leonard recounted an instance in a portfolio company where the wrong we have fallback to redress. We seek offshore domicile, typi- Board encountered pressure from a local government official to cally Mauritius, for our funds,” she explained. “All that said, you may enter partnerships with other companies where the official stood win offshore, but how do you enforce rights onshore?” to benefit. “Regarding FCPA (Foreign Corrupt Practices Act) compliance, the directive we give our Board members is to always give GPs agree that the optimal solution is to structure governance in a standard response when approached about any below-the-board such a way as to avoid dependence on legal systems of any kind type of transaction: ‘This is a disclosure event, and we are required and to partner with people of high ethical standards of behavior. to disclose any such event to the Board and to issue a press release.’ I can’t tell you how many times that simple response has “Even if, and especially if, you’re not buying control, you need to in- ended the discussion and, perhaps, turned away years of further vest in a management/ownership team of great integrity. You’re buy- predation upon our companies,” Leonard explained. In that case, ing into a company that was created by another group of people. The the official walked away and his later attempts to advance illicit only way to be comfortable is if the company’s financials have been business activities with the GEF-backed company eventually got produced by people of integrity. All the systems and processes in him into trouble with local press. the world can’t save you from someone bent on defrauding you, or Robust Control Systems who, when push comes to shove, wants to take the easy way out,” warned Barger. Control systems—both top-down and bottom-up mechanisms—not only help the GP to minimize the risk of fraud or leakage by insiders Leonard recalled several waste management companies that GEF with access, but also carry the potential for very good productivity has looked at where non-disclosed liabilities came up in the diligence gains. Says Barger, “If you have the right metrics and good data phase. “We can clean up those liabilities from a physical standpoint— flows, you can easily see whether your strategic goals are being the remediation or material issues—but what about the toxicity of met or not, and whether your financials are true and fair.” She’s the management that didn’t disclose it? It’s hard for us to fathom, encouraged by the fact that control procedures are becoming better no matter what kind of rigid corporate governance we implement, understood and more widespread within emerging markets. “Very that we would have them living and breathing the kind of transpar- often you lack the really good internal controls that go all the way ency we expect,” he commented. “Generally,” he continued, “if the down to the shop floor. These disciplines, however, are becoming culture of a company does not appear amenable to transparency and better known,” said Barger. “The challenge for fund managers is change, it is a major red flag arguing against an investment.” ensuring that they’re implemented and being kept up.” Leonard recommends taking a cultural approach, seeking to instill GEF’s Leonard points to the CFO as a critical component to the in- values with investees. “We see corporate governance as a cultural is- tegrity of the control systems within an investee. “We like to imbue sue, as a tool for establishing a strong open working relationship with within the culture of a company that each individual has both a pro- our investees. It’s not legalistic,” he explained. “Five years ago, we fessional as well as a personal loyalty. We consider the CFA oath sim- decided to work with each company’s Board in drafting a statement ilar to the Hippocratic oath taken by physicians, a professional loyalty of corporate governance principles as part of our broader attempt to to a higher order. For the companies we invest in, we make sure that ingrain corporate governance into the culture from the top down.” Continued on page 16

EM PE Quarterly Review Vol V Issue 1, Q1 2009 15 Corporate Governance, continued from page 15

“The irony is, GPs almost Exhibit 5: Steps GPs and Boards Can Take to Enhance Corporate Governance in Times of Crisis have the luxury right now to Scrutiny of Board composition: age/term limits, company- report bad news. Although it’s not specific director education/orientation programs welcome, investors are a little more Special committee of independent directors/advisers to help desensitized and less surprised by it.” company navigate the crisis —Anonymous LP Board-management crisis communication plan with active updates, deliberations, etc. Governance in the Context of Crisis Comprehensive review of company’s risk exposure Most LPs who screen managers for the sorts of governance Review/eliminate unnecessary board expenses and company principles and practices outlined here expect their GPs are do- compensation packages; cut director retainers if possible. ing everything possible to preserve the value of the portfolio. Investors therefore advise against trying to bury or defer report- Board building: seek outside candidates comfortable/ ing on poor performance until a GP can turn things around. experienced with crisis Source: Barbara Etorre, “The Board in Crisis”, The Corporate Governance Advisor, Jan/Feb 2009. “The irony is, GPs almost have the luxury right now to report bad news,” said one LP. “Although it’s not welcome, investors are a little more desensitized and less surprised by it, and GPs look at the composition of the Board, enlisting outside expertise can blame exogenous factors more so than they can in good or conducting a comprehensive review of the company’s risk ex- times. It’s in the nature of people in this industry to believe posure. [See Exhibit 5] strongly in their own abilities and to put a positive spin on things, but they may be underestimating the severity or per- “The only way to get through these difficult times is to have good sistence of these performance-related issues,” he cautioned. corporate governance policies and procedures to help LPs and GPs work through very challenging issues,” observed CPPIB’s John LPs suggest that now is exactly the time to demonstrate the Breen. “We’re communicating to our GPs that governance, trans- soundness of existing governance protocols, or to take the op- parency and alignment of interest are necessary ingredients to pre- portunity to make governance even stronger by taking a harder serving value and building enduring private equity relationships.” ■

Publications How is EM PE Faring During the Global Downturn? EMPEA’s publications tackle this issue and many more: • LP allocation trends and attitudes toward the asset class • The outlook for private equity in CEE/Russia/CIS, MENA and India • 2009 full-year statistics covering fundraising, invesments and funds in the market

Upcoming Research from EMPEA

March EMPEA Insight: CEE/CIS EMPEA/Coller Capital 2009 Emerging Markets Private Equity Survey April 2008 Emerging Markets Private Equity Fundraising and Investment Review EMPEA Insight: Infrastructure May EMPEA Insight: MENA EMPEA Insight: India June EM PE Quarterly Review Q2/2009 (Features include: Mezzanine and Other Financing Models, Portfolio Company Value Creation)*

*Subject to change.

For more information about EMPEA’s EMPEA Research Online: Members can access EMPEA’s research by logging in to www.empea.net. Research contact us at [email protected] EMPEA’s research is also available for purchase by non-members through the online store. or +1.202.333.8171.

16 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Defying the Downturn? Fundraising and Investment Strong in 2008

Bucking global trends, 2008 saw the continuation of record- Funds focused on opportunities in Central & Eastern Europe breaking fundraising for the asset class, albeit at a less dra- (CEE) and Russia/CIS markets saw flat growth in 2008. The matic rate of growth than in previous years. After nearly nominal CEE/CIS figures show a 62% decline, with US$5.6 doubling between 2006 and 2007, capital raised by emerging billion in capital commitments contrasting with 2007’s record- markets-focused funds grew by 12% in 2008. However, given breaking US$14.6 billion. However, after normalizing 2007’s the sharp declines in private equity capital globally and the dif- totals for two outsized fund closes together accounting for ficult fundraising environment ahead for 2009, any growth of US$9 billion, it becomes apparent that the region in fact saw the asset class in 2008 was welcome news. near-zero growth between 2007 and 2008.

Total private equity capital invested into emerging market com- Latin America and the Middle East drew US$4.5 billion and US$5.9 panies decreased slightly in 2008, falling by 5% as investors billion, respectively, representing flat growth for Latin America and held off deal-making in the second half of the year as they wait- 17% growth for Middle Eastern funds compared with 2007. ed for seller expectations to match market realities or preferring to channel capital into existing portfolio companies. The good Pan-emerging market funds saw a significant jump in capital news is that those EM PE funds with capital to deploy are well- raised, rising by 89% with an increase in capital from US$4.1 positioned to capitalize on a ripe investment environment: more billion to US$7.7 billion, US$5.2 billion of which was raised by reasonable valuations and stronger interest in private equity two multi-billion dollar funds. [See Exhibits 2 and 3] capital than ever before among cash-starved companies with few financing alternatives to support their growth. Investment Trends

Fundraising Trends Although capital invested in emerging markets fell slightly in 2008, the decline came nowhere near the dropoff seen in Two hundred and ten private equity funds raised US$66.5 bil- mature PE markets, where deal volumes fell by an estimated lion in 2008 compared to the US$59.2 billion in 2007, an in- 20% or more in 2008. Total private equity investment in the crease of 12% and a new, all-time high for the asset class. emerging markets fell 5%, from US$50.5 billion in 2007 to Emerging Asia drew the bulk of the capital as in previous US$47.8 billion in 2008. years, with US$39.7 billion or 60% of the total raised. Over US$108 billion has been raised by Asian funds since 2003, This decrease appears to be the product of falling asset values with a 38% increase in capital raised for Asian private equity more so than obstructed deal flow, as was the case in Western between 2007 and 2008. markets. EMPEA records 755 emerging market transactions in 2008, with 379 deals, or roughly half of the total, taking place Africa tied with Asia for year over year growth (YoY), with in the second half of the year. funds raised growing by 38% after flat growth in 2007. Funds targeting Africa raised US$3.2 billion in 2008 versus $2.3 bil- While approximately 60% of investment activity was concen- lion in 2007. trated in Asia, Africa and Central and Eastern Europe/CIS wit-

Exhibit 1: Fundraising and Investment Totals, Exhibit 2: Emerging Markets Private Equity Fundraising 2003–2008 (US$ Billions) and Investment Totals, 2003–2008 Fundraising % YoY Investment % YoY 70 $66.5 Year (US$B) Change (US$m) Change ■ Funds Raised $59.2 60 2003 $3.1 NA $6.0 NA ■ Capital Invested $50.5 $47.8 50 2004 $5.9 88% $7.4 23%

40 $35.4 $33.2 2005 $25.8 336% $12.0 62%

US$ Billions 30 $25.8 2006 $33.2 29% $35.4 195% 20 $12.0 2007 $59.2 78% $50.5 43% 10 $6.0 $5.9 $7.4 $3.1 2008 $66.5 12% $47.8 -5% 0 2003 2004 2005 2006 2007 2008 Continued on page 19

EM PE Quarterly Review Vol V Issue 1, Q1 2009 17 Fundraising and Investment, continued from page 17

Exhibit 3: Emerging Markets Private Equity Fundraising Totals by Region, 2007–2008 (US$ Millions)

Multi-region/Pan-EM $7,721 $4,077 ■ 2008 $5,898 Middle East ■ $5,027 2007

Africa $3,218 $2,340

LatAm & Carib. $4,461 $4,419

CEE & CIS $5,559 $14,629

EM Asia $39,660 $28,668

0 $10,000 $20,000 $30,000 $40,000 US$ Millions nessed significant growth in invested capital of 56% and 43%, Exhibit 4: Emerging Markets Investment in 2008 with US$5.3 billion and US$6.3 billion invested, respectively. (US$B, No. Deals) Brazil $3.0 (36) Five countries accounted for almost half of all investment in 2008: China, India, Brazil, Russia and South Africa, in that order. Companies in China and India received the majority of this China $9.0 (222) new capital with US$9.0 billion and US$7.5 billion invested, respectively. [See Exhibit 4] Both countries witnessed over Other EM 200 deals, while the other three markets saw around 30 deals countries each, and investment volumes totaling US$3.0 billion in Brazil, $23.7 (237) US$2.6 billion in Russia and US$2.0 billion in South Africa. India $7.5 (203) Companies in the Asian region attracted US$28.3 billion in private equity investment in 2008, followed by Latin Ameri- can companies with $US7.0 billion. [See Exhibit 5] EMPEA Russia $2.6 (29) estimates that investment in Middle Eastern enterprises to- South Africa $2.0 (28) taled US$1.0 billion; however, this figure reflects only those deals for which financial details were disclosed (16 of 48 Total Emerging Markets Investment $47.8 Billion (755) transactions)—the region counts the largest number of un-

Exhibit 5: Capital Invested in Emerging Markets Private Equity, 2003-2008 (US$m) Region Emerging Asia Latin America CEE/CIS Africa Middle East Total

2003 $4,528 $822 $676 $651 NA $6,026

2004 $4,316 $607 $986 $1,154 $176 $7,385

2005 $7,692 $1,069 $842 $1,723 $724 $11,986

2006 $22,468 $4,263 $2,603 $1,292 $5,195 $35,379

2007 $30,370 $8,017 $4,426 $3,362 $3,500 $50,513

2008 $28,270 $6,962 $6,344 $5,252 $1,007 $47,834

Continued on page 20

18 EM PE Quarterly Review Vol V Issue 1, Q1 2009 ADVERTISEMENT Fundraising and Investment, continued from page 18

Exhibit 6: Fundraising Totals, 1H2007 vs. 1H2008, Exhibit 7: Investment Volume and Value by Quarter 2H2007 vs. 2H2008 (US$ Billions) (US$ Billions) 45 16 300 1H 2H 40 $38.1 14 $13.5 $13.2 $35.3 250 35 12 $31.3 $11.0 $10.2 30 200 10 No. Deals 194 182 190 189 25 8 150 $21.0 US$ Billions US$ Billions 20 6 100 15 4 10 50 2 5 0 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 0 1H 2007 1H 2008 2H 2007 2H 2008 ■ Value (US$B) ■ No. Deals

disclosed transactions. In Africa, 69 companies drew US$5.3 compared to the total raised during the first half of the year, billion in capital. Investments in CEE/CIS countries totaled and was down 18% versus the second half of 2007. [See US$6.3 billion across 74 deals. Exhibit 6]

Following global patterns for the private equity industry, the The amount of invested capital followed a similar trend, declin- second half of the year marked declines in both fundraising ing in the second half of the year. Interestingly, the number of and investment. While fundraising among emerging market deals per quarter remained relatively even, averaging roughly funds was actually up 68% for the first two quarters of 2008 190 transactions, signaling that while deal flow continues pric- relative to the same period in 2007, fundraising declined 11% es have begun to fall. [See Exhibit 7]

Exhibit 8: Funds Over US$1 Billion Closed in 2008

Funds Raised to Fund Name Fund Manager Type Geography Date (US$B)

TPG Asia V Texas Pacific Group (TPG) Buyout Pan-Asia $4.3

CVC Capital Partners Asia Pacific Fund III CVC Asia Pacific Ltd. Buyout Pan-Asia $4.1

Actis Emerging Markets Fund III Actis Multi-Stage Multi-regional $2.9

Hope USD Master Fund I, LP Hopu Investment Mmgt. Co. Buyout China $2.5

CIPEF V Capital International Buyout Multi-regional $2.3

Advent Central & Eastern Europe IV Advent International Buyout CEE, Ukraine $1.6

Baring Private Equity Asia IV Baring Private Equity Asia Multi-Stage Pan-Asia $1.5

HSBC Private Equity Fund VI HSBC Private Equity Buyout Pan-Asia $1.5

Gávea Investments Fund III Gávea Investimentos Buyout Brazil $1.2

Continued on page 21

20 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Fundraising and Investment, continued from page 20

Outlook in their commitments to the asset class, although a contrac- tion in the dollar value of commitments is possible in 2009 and Investment activity is expected to pick up in 2009, while potentially 2010. raising new funds will prove difficult, particularly for first- time managers or funds with more niche strategies. While Although fundraising will be challenging until LPs begin to economists continue to revise their GDP projections see the return of cash flows when distributions resume, the downward, and the decoupling thesis has been tabled if not outlook for investment in 2009–2010 is quite positive. Provid- rejected outright, the consensus still appears to be that the ed that liquidity issues do not pose too severe a constraint, only economies that stand to grow in the near term remain recent fund vintages with remaining capital to deploy should those in emerging markets. play an active role in the months ahead. Already, the first three months of 2009 have seen at least US$4.3 billion in- EMPEA‘s 2009 survey of institutional investors supports this vested across 134 deals—a healthy start in terms of number conclusion. Limited Partners (LPs) with exposure to emerging of transactions, but considerably less relative to 2008 val- markets have no intentions of retreating, as has been the case ues for the same period, which saw US$13.5 billion invested in past crises. Rather, LPs expect continued long-term growth across 194 deals. ■

Are You In?

Emerging Markets Private Equity Survey

2009

Now Available Online at www.empea.net

EM PE Quarterly Review Vol V Issue 1, Q1 2009 21

INVESTORS’ VIEWS OF PRIVATE EQUITY IN EMERGING MARKETS

19757_Spring 2009_EMPEA Barometer_v7.indd 1 30/3/09 13:05:12 Member and Industry News Africa Darby Overseas Investments, Ltd., the private equity arm of Franklin Templeton Investments, acquired a 32.4% equity stake Denham Capital invested equity of up to US$150 million in Bio- in Gangwon Wind Power Co. Ltd (GWP) through its Korea Emerg- Therm Energy in South Africa, a company targeting energy in- ing Infrastructure Fund (KEIF). GWP was established in 2001 to tensive industries where industrial processes release significant construct a wind farm in Gangwon Province in eastern Korea that amounts of waste energy; Biotherm’s technology utilizes this is now the largest in the country and among the largest in Asia. wasted energy to produce electricity. IDFC Private Equity and UTI Ventures have acquired a 26% stake Ethos Private Equity and Old Mutual Private Equity won a joint bid in Deepak Cables, an India-based manufacturer of overhead alumi- to invest in Idwala Industrial Holdings Ltd. The size of the transaction num conductors for the power transmission and distribution indus- has not been disclosed. Ethos’s investment was made through its try, for a total of approximately US$58 million. IDFC’s investment of US$750 million fund, Ethos Fund V. Old Mutual Private Equity in- US$41 million was made through the US$700 million IDFC Fund III. vested through its current fund, Old Mutual Private Equity Fund II. IL&FS Investment Managers Limited (IIML) announced the fi- Horizon Equity Partners announced a significant stake in the nal close of IL&FS India Realty Fund II (IIRF2) at US$895 million, management-led buyout of Johannesburg-based Lincoln Lubrica- exceeding its target of US$750 million. This makes it one of the tion SA. This is the fourth investment from Horizon’s R600 million single largest funds dedicated to the Indian real estate sector. (US$60 million) Fund III. Private equity firmUnitas Capital (formerly CCMP Capital Asia) International Housing Solutions (IHS) received approximately has raised US$1.2 billion for its third buyout fund, Asia Oppor- US$12 million from the Development Bank of Southern Africa. tunity Fund III. IHS will use the proceeds for the construction of approximately 30,000 houses beginning with rental units in the Johannesburg Cen- CEE/CIS tral Business District, which have been converted from old offices. Amstar Global Partners, Ltd. held the final closing of its first Kingdom Zephyr Africa Management Company has acquired third party fund, Amstar Global Property Fund I L.P., with total a 21.2 % stake in Mixta Africa, a low-cost housing developer with commitments of US$335 million. The Fund invests in joint ven- operations in six West and North African countries, for approxi- ture real estate development projects in Eastern Europe and Asia mately US$58 million. The investment is Kingdom Zephyr’s larg- and has projects underway in Russia, Turkey and India. est to date. The investment was made through Kingdom Zephyr’s Pan-African Investment Partners II Fund. Arbis Capital Partners, a Polish private equity fund, acquired a controlling stake in Barvinok, a supermarket chain located Emerging Capital Partners and Kingdom Zephyr Africa Man- in the western part of Ukraine with 24 stores and sales of agement Company invested in Thunnus Overseas Group, a pro- US$155 million. ducer and distributor of canned tuna in Africa with operations in Cote d’Ivoire and Madagascar, for US $28.9 million and US$18.5 ARX Equity Partners, formerly DBG Eastern Europe, has ac- million, respectively. Kingdom Zephyr invested via its Pan-African quired a majority stake in Polish retailer Kakadu. The investment, Investment Partners II Fund. the size of which was not disclosed, was made through DBG Eastern Europe II and ARX CEE III. The latter fund held its first Southview Pty Ltd, a partnership between the CEDA Venture close last October at approximately US$107 million and is target- Capital Fund and Botswana Medical Aid Society, acquired ing commitments totaling approximately US$162 million. 50% of the shares of Medical Rescue International Botswana Limited (MRI) from MRI Holdings and BlueCross. The Aureos Central Asia Fund (ACAsF) held a second closing at US$67 million with the addition of commitments from the Asia Development Bank of Japan and the European Bank for Re- construction and Development (EBRD). The fund has already Asia Mezzanine Capital Group provided US$40 million in stra- completed two investments. The first was a US$10 million in- tegic mezzanine capital for the Anhui YingLiu Group from its Asia vestment in Kazakh equipment leasing company Leasing Group Strategic Capital Fund, L.P. The Anhui YingLiu Group is a leading and the second was a US$5 million investment in Ala TV, Kyrgyz- designer/manufacturer of precision casted and machined steel stan’s leading cable TV operator. component parts for specialty manufacturers of construction, mining and energy industry-related equipment. Bancroft Private Equity, LLP, a Central European private equity fund manager, acquired 94.36% of Frost s.r.o., a Slovakian ice China New Enterprise Investment (CNEI) has invested US$50 cream producer, from one of its founders. million in Feida Steel Plate Co., China’s leading privately-owned independent hot-rolling steel products processor. The invest- Enterprise Investors (EI) made the first two investments from ments will be made through CNEI Fund I and CNEI Fund II. LDC, Enterprise Venture Fund I (EVF I). The fund will acquire 30% of the mid-market private equity arm of Lloyds Banking Group re- Dystrybucja Polska (Polish Distribution), a direct mail distributor cently committed US$30 million to CNEI Fund II. from Poznań, Poland, for approximately US$2 million and 36% of Bio-Profil, a Polish beauty and medical marketing company for Continued on page 23

22 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Member and Industry News, continued from page 22 approximately US$4 million. EVF I is EI’s first venture capital fund The Carlyle Group has closed its first Middle East and North and is the largest fund of its type in Poland and in the CEE region Africa (MENA) fund with US$500 million in total commit- at approximately US$130 million. ments. Carlyle MENA Partners will focus on investments in various sectors in the MENA region, including energy, financial Horizon Capital, a Ukrainian private equity fund, invested US$15 services, healthcare, industrial, infrastructure, technology and million into Fresh, a small supermarket chain. transportation.

Latin America The government of Jordan is set to launch a venture capital fund in cooperation with the European Investment Bank. The Altra Investments announced the partial closing of its new fund fund will target total commitments of approximately US$35 Altra FCP I. The fund has secured commitments of US$75 million million and will invest in the local industrial sector. from Colombian institutional investors and will target a total fund size of US$110 million. Altra FCP I will seek investment oppor- Global Capital Management Ltd., a 100% subsidiary of tunities in the Andean Region and Central America, particularly Global Investment House, has acquired a 60% stake in Jas- Colombia and Peru. sim Transport & Stevedoring Company, one of Kuwait’s largest integrated logistics companies. The investment was made FIR Capital has invested in Samba Tech through the venture through the US$615 million Global Buyout Fund and is report- capital fund FUNDOTEC II. Samba Tech is a Brazilian start-up edly the largest private equity transaction in Kuwait’s history. focused on digital logistics, namely delivery of rich-media (e.g. videos, audio) content. GrowthGate Capital Corporation, the GCC-based special- ist buyout firm, has acquired 33.33 % of Averda International The CASEIF II FUND, managed by Lafise Investment Manage- Ltd., an integrated waste management company with opera- ment, has invested in Desinid, a company that produces and tions throughout the Middle East and North Africa. The value commercializes powdered drinks in Costa Rica. The deal is val- of the transaction was not disclosed. Averda’s ‘Green Com- ued at approximately US$750,000. CASEIF II is focused on in- pany’ policy includes recycling programs, bio-fuel extraction vestments in Central America and the Dominican Republic. processes, and low emission standards.

Middle East Global News

Egypt-based private equity firmCitadel Capital is set to hold the Siguler Guff raised US$915 million for its second fund-of- first close of its Citadel Capital Joint Investment Fund, which will funds focused on the BRIC countries of Brazil, Russia, India seek investment opportunities in the Middle East and North Af- and China. Siguler Guff’s first BRIC fund closed at US$610 mil- rica. The fund is targeting total commitments of US$500 million. lion in March 2006. ■

EM PE Quarterly Review Vol V Issue 1, Q1 2009 23 Funds in the Market Q1 2009

Funds Launched PE Firm Fund Name (Target Fund Size) Geographic Focus Aditya Birla Capital Aditya Birla Private Equity Fund (US$350m) India Advent International Latin American Private Equity Fund V (US$2bn) LatAm & Carib. Ant Global Partners (AGP) Ant Global Partners Cleantech Fund (US$250m) Indonesia CICC, Shanghai International Group Golden Partners Capital (US$2.9bn) China East Capital Private Equity East Capital Special Opportunities Fund (US$100m) CEE Hainan Development Holdings Co. Nanhua Venture Capital Fund (US$147m) China IDFC Capital (Singapore) Pte Ltd. IDFC Capital Fund I (US$500m) Pan-Asia Ithmar Capital Ithmar Fund III (US$1bn) GCC Macquarie Bank, Woori Bank South Korea Infrastructure Fund (US$1bn) South Korea Mezzanine Management Central Europe Accession Mezzanine Capital III (US$400m) CEE New Horizon New Horizon Phase III Fund (US$1bn) China Pyramid Saimira Group Pyramid Saimira Group Film Fund (US$52m) India Rasmala Investments MENA Private Equity Fund II (US$120m) MENA TVS Capital TVS Shriram Growth Fund (US$230m) India Ventureast BYST Growth Fund (US$5m) India Zhejiang Government Zhejiang Venture Investment Guidance Fund (US$73m) China

Funds with Closes Funds Raised PE Firm Fund Name (Fund Size) Geographic Focus (Closes) Q12009 Avigo Capital Partners Avigo SME Fund III (US$300m) India US$150m Banyan Tree Indochina Hospitality Fund Banyan Tree Holdings China US$268m (US$268m) China Kinwa High Hangzhou Internet Venture Capital Co. Ltd. China US$11m Technology Co. Ltd. (US$11m) China Science & Merchants Beijing Zhongke Fangshan VC Fund China US$73m Capital Management (US$73m) EMP Central America Mezzanine EMP Global LatAm & Carib. US$82m Infrastructure Fund (US$150m) Leapfrog Investments Leapfrog Investments (US$100m) Pan-Africa US$50m Crown Asia-Pacific Private Equity Fund LGT Capital Partners Pan-Asia US$373m (US$373m) NBK Capital NBK Mezzanine Fund I (US$200m) MENA US$150m New Horizon Capital China Fund New Horizon China US$147m (US$147m) Rasmala Private Equity Fund II Rasmala Investments MENA US$120m (US$350m) Shanghai Financial Industrial Fund Shanghai Financial Industrial Fund China US$1.2bn (US$2.8bn) Brazil, Russia, Siguler Guff & Company, LLC BRIC Opportunities Fund II (US$915m) US$915m India, China The Carlyle Group Carlyle MENA Partners (US$500m) MENA US$500m

24 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Notable EM PE Exits & IPOs

Portfolio Company Private Equity Year of Capital Date Country Name Firm Name Sector Investment Invested of Exit Exit Return Belarus Silvano Alta Capital Partners Retail & Consumer Jan-09 Fashion Group Brazil Oeste Citi Venture Capital Transportation Dec-08 Sale to Megapar for Participacoes International Brazil, US$430m Investidores Institucionais Fundo de Investimento em Participações (IIFIP) Brazil Prodimol FIR Capital Partners Biotechnology Dec-08 Sale to Orgenics Biotecnologia Central Somdiaa Emerging Capital Agribusiness 2003 Jan-09 Sale to existing 2x Africa Partners shareholders for US$26m China Perfect World SAIF Partners Online Gaming 2006 US$8m Dec-08 Company share buyback for US$56.6m China Western Goldman Sachs Mining Aug-08 – Share disposal on Mining Co. Mar-09 Shanghai Stock Exchange (US$44.5m) India Avestha ICICI Venture Funds Biotechnology 2001 US$1.5m Jan-09 Gengraine Technologies India Binani Cement Credit Suisse Industrials 2006 Jan-09 Sale of 9.11% stake to Stansen Holdings India MindTree Walden International Information 2000 Feb-09 Sale of 2% stake to Technology Nalanda Capital for US$3.1m India Religare Merrill Lynch Financial Services 2007 US$1.5m Dec-08 Share disposal of 5% .7x Enterprises stake on National Stock Exchange for US$2m India Telsima NewPath Ventures, Telecommunications 2005–2007 Mar-09 Sale to Harris Stratex Corporation CMEA Ventures, New Network for US$12m Enterprise Associates, Intel Capital, JAFCO Asia Kenya Equity Bank AfriCap Microfinance Financial Services 2003 Dec-08 Share disposal of Investment Company US$31m on Nairobi Stock Exchange Nigeria Lagos Palms Actis, Tayo Amusan Shopping Centers 2004 US$40m Dec-08 Sale to JV Partner, Tayo Amusan Poland Hoopla.pl MCI Management Retail & Consumer 2006 Oct-08 Sale of 41.95% stake (ecommerce) Russia Kamaz Troika Capital Partners Automotive 2006, 2008 Dec-08 Sale of 10% stake to Daimler for US$250m Russia Severnaya East Capital Banking 2008 Approx. Dec-08 Sale of 10% stake Kazna Bank EUR€28m to Alfa-Bank for EUR€27m Singapore ECS Holdings Prime Partners Information Mar-09 Strategic Sale for Technology US$215m South Medy-Tox STIC Investments Inc. Pharmaceuticals 2006 Feb-09 IPO on Korean Stock 2x; Korea Exchange 33.2% IRR Thailand Modern Asia HSBC Private Equity Waste Management 2006 Feb-09 Sale to Dowa Eco- Environmental system Holdings Vietnam Saigon Gas Mekong Capital Oil & Gas 2005 Dec-08 Sale to Total Holdings Corporation Vietnam Masan Group VinaCapital Food & Beverage 2006, 2007 Mar-09 Sale for US$20m 2.5x

EM PE Quarterly Review Vol V Issue 1, Q1 2009 25 EMPEA Members as of March 2009

Premier Members AB Capital Clayton, Dubilier & Rice Eton Park Capital Kohlberg Kravis Roberts Abraaj Capital Limited Clearwater Capital Management & Co. Abu Dhabi Investment Partners European Investment Millennium Global Authority Clifford Chance LLP Bank NBK Capital Actis Climate Change Capital Evolvence Capital Norton Rose Advent International Conduit Capital Export Development O’Melveny & Myers LLP Canada AIG Capital Partners, Inc. Partners LLC Orrick, Herrington & FMO- Netherlands Akin, Gump, Strauss, Darby Overseas Sutcliffe LLP Development Company Hauer & Feld LLP Investments Ltd Permira Global Capital Alfa Capital Partners Debevoise & Plimpton LLP Quilvest Management Ltd. Asian Development Bank DEG Shearman & Sterling LLP Global Environment Fund Baring Private Equity Delta Private Equity SHUAA Partners Partners Google.org Asia Ltd SIFEM Denham Capital GP Investments Baring Vostok Capital SigmaBleyzer Partners Management LP HarbourVest Partners, LLC Siguler Guff & Development Bank of HBG Holdings Capital International Company LLC Private Equity Funds Southern Africa Hony Capital SJ Berwin (CIPEF) Dubai International Capital ICICI Venture Funds Standard Bank Private Capital MS&L Edwards Angell Palmer & Management Company Equity The Carlyle Group Dodge LLP IDFC Private Equity SVG Advisers Limited Cartica Capital LLC EFG-Hermes Private IL&FS Investment Equity Swicorp CDC Group plc Managers Ltd. Warburg Pincus Emerging Capital International Finance Chadbourne & Parke LLP International LLC Partners Corporation China New Enterprise EMP Global White & Case LLP Investment Istithmar Ethos Private Equity Ltd Zephyr Management, LP Citadel Capital Japan Finance Corporation

Members in bold are EMPEA’s founding Charter Members.

Full Members AB Invest Asia Mezzanine Capital CRP Companhia de Foursan Group Absa Capital Equity Investments Advisers Ltd. Participações Gávea Investimentos ACCION Gateway Family Asian Tiger Capital Partners DCD America, Inc. GIMV NV of Funds Aureos Capital Limited Development Partners Great Circle Capital LLC International Advanced Finance and Baird Asia Advisors Ltd. GrowthGate Capital Corporation Investment Group Discovery Americas Blue River Capital GVFL Limited African Capital Alliance Capital Partners Brait Private Equity Henderson Equity Partners AIC International Investments Eastgate Capital Group BTS Investment Advisors Horizon Capital Ltd. Emergent Investment Group Capital Invest Horizon Equity Partners AIF Capital Environmental Investment Capital Trust SA Hupomone Capital Partners Albright Capital Partners & CWP Centras Capital Ltd. Singapore Pte Ltd. Management LLC Eurasia Capital Management CIMB Standard Strategic I&P Management (Indian Algebra Capital Evolvence India Life Asset Advisors Ocean) Ltd. Alothon Group Science Fund Citi Venture Capital International Icentis Capital Alta Growth Capital EVU Management Ltd. Cordiant Capital IDFC Project Equity Co. Ltd. Amstar Global Advisors Finlombarda Gestioni SGR SpA CreditProm-Capital International Housing Solutions Arapima Fund FIR CAPITAL Partners Ltda. CRG Capital, LLC Ithmaar Bank B.S.C. First Avenue Partners Continued on page 27

26 EM PE Quarterly Review Vol V Issue 1, Q1 2009 Full Members, continued from page 26

JS Private Equity Nine Rivers Capital Romanian-American Enterprise Trans-Century Ltd. Kingdom Zephyr Africa Management Ltd. Fund Travant Capital Partners Management Northstar Equity Partners Shoreline Capital Management TribeCapital Partners L2I—Financial Solutions, Inc. NSG Capital Administracao de Small Enterprise Assistance Trivella Investimentos Recursos S.A. Funds Leopard Capital Ltd. Tuninvest Finance Group Och-Ziff Capital Management Soar Management, Inc. Lereko Metier Capital UFG Capital Partners Growth Fund Group Société Générale Asset Unicorn Investment Bank BSC Lighthouse Funds OSON V.I., LLC Management Alternative Investments The Uruguay Fund L.P. Lombard Investments Paladin Realty Partners, LLC South Asian Real Estate Ltd. Venture Capital Trust Fund Madagascar Development Pan African Capital Group, LLC Venture Partners Botswana Partners LLC Poteza Partners Steep Rock Capital Vision Brazil Marshall Fund QInvest Stratus Group Votorantim Novos Negocios MCB Capital Partners Ltd. Quadriga Capital Russia Templeton Asset Management Wamex Private Equity Mgmt. Mekong Capital, Ltd Rio Bravo Investments Ltd Third Security, LLC Wolfensohn Capital Partners National Venture Capital LLC The Rohatyn Group (TRG) Thousand Hills Venture Fund Zephyr Peacock Fund I Navis Capital Partners Limited Management LP TMG Capital TMT Ventures Ltd

Associate Members

Abax Corporate Services Ltd. Coller Capital IDI Emerging Markets Rensselaer Polytechnic Institute Abraxas Global Analytics Columbia Business School K2 Investimentos Robeco Private Equity Acap Partners Commonfund Capital KfW IPEX—Bank GmbH Russell Reynolds Associates Adams Street Partners Control Risks Kusuntu Partners SAVCA Addventure Advisers Corporate Connect BV Liberty Global Capital Services Squadron Capital Alberta Investment Credit Suisse—Customized Magog & Cie Ltd. Stanford Management Management Corporation Fund Investment Group Milbridge Capital Management Company Alpha Associates Denning and Company LLC Morgan Stanley Alternative SVB Capital AlpInvest Partners N.V. EMAlternatives LLC Investment Partners Teacher Retirement System Amanda Capital Plc Emerisk SA MSP Capital Management of Texas ANBID—Associação Nacional European Bank for MVision Private Equity Advisors Technoserve dos Bancos de Investimento Reconstruction and National Council for Social Thunderbird Private Asia Alternatives Advisor Development Security Fund P.R.C. Equity Center Axonia Partners Finnish Fund for Industrial Natixis Private Equity TozziniFreire Advogados Cooperation Azerbaijan Investment International Management Tufts University Investment Company Georgetown University New Market Venture Office Investment Office Barnellan Equity Advice Ltd. Management LLC UMWA Health & Retirement Global Strategies Group Funds Boston BioCapital LLC Northgate Capital Goldman Sachs UNIDO ITPO—China C.P. Eaton Partners, LLC OMERS Private Equity Grupo Fundamentum Union Bancaire Privée Caísse de depot et placement Omidyar Network du Québec The Gutmann Group Overseas Private Investment Value Enhancement International CalSTRS Hamilton Lane Corporation Veracity Worldwide LLC Cambridge Associates Helix Associates Ltd. Paul Capital Partners World Bank Pension Plan Cam-NewMarkets LP Howard Hughes PCGI Medical Institute XT Capital Partners Campbell Lutyens & Co. Ltd. PE Consulting Investintoindia Hunton & Williams LLP Private Ltd. Canada Pension Plan Investment Board IDFC Capital (Singapore) PricewaterhouseCoopers Pte Ltd. Capricorn Investment Group RDV Corporation

EM PE Quarterly Review Vol V Issue 1, Q1 2009 27 Featured Events

EMPEA Conferences Industry AMEXCAP Mexico Private Webcasts Equity Conference Cleantech Forum Copenhagen In Strategic Partnership with EMPEA Copenhagen, Denmark Broken BRICs? 2 April 2009 28–30 April 2009 An EMPEA Webcast Series JW Marriott Hotel, Mexico City http://cleantech.com/cleantechforum/ 7–28 April 2009 copenhagen09/ www.brokenbrics.com ABVCAP Conference 2009 China Venture Capital & Private Equity BRAZIL In Strategic Partnership with EMPEA New York Forum 2009 7 April 2009 14–16 April 2009 The Westin New York Times Square, New York 10:00 EST/15:00 GMT Grand Hyatt Hotel, São Paulo http://www.congressoabvcap2009.com.br 28 April 2009 RUSSIA http://www.zero2ipo.com.hk/cvcf/ny2009/ 14 April 2009 10:00 EST/15:00 GMT IFC’s 11th Global Annual Private Equity Conference Peru Private Capital Forum INDIA In Association with EMPEA JW Marriott, Lima 21 April 2009 12–13 May 2009 21 May 2009 10:00 EST/15:00 GMT The Ritz-Carlton Hotel, Washington D.C. http://www.lavca.org/lavca/web.nsf/ pages/2009peruforum.html CHINA www.globalpeconference.com 28 April 2009 8:00 EST/13:00 GMT Dow Jones Limited Partners Summit 2009 23–24 June 2009 Grand Hyatt, New York City Private Equity Investing in the Middle East, http://lpsummit.dowjones.com/ North Africa & South Asia (MENASA) An EMPEA Webcast hosted by Abraaj Capital 2 June 2009 10:00 EST/15:00 GMT

Save the Date! EMPEA invites you to the following special events in association with IFC’s 11th Annual Global Private Equity Conference.

11 May 2009 13 May 2009 EMPEA Members Cocktail Reception EMPEA LP Breakfast co-hosted by 6:00 p.m. - 8:00 p.m. the Institutional Limited Partners Association (ILPA) Cosmos Club, Washington D.C. 7:15 a.m. - 8:30 a.m. (EMPEA members-only event) The Ritz-Carlton, Washington D.C. (by invitation only)

RSVP To RSVP to the events above, please contact Kyoko Terada at [email protected] or call +1.202.333.8171

28 EM PE Quarterly Review Vol V Issue 1, Q1 2009