Viewpoint April 2010 2010 Promises to Be an Improvement Over the Challenging Year Behind Us, but We Are Not out of the Woods Yet

A Publication of the Emerging Markets Private Equity Association Volume VI, Issue 1, Q1 2010

Viewpoint April 2010 2010 promises to be an improvement over the challenging year behind us, but we are not out of the woods yet. Limited partner capital is slowly return- FEATURES ing to market, and portfolio performance is trending upward. But new issues, particularly potential regulation and LP-GP terms, will likely dominate, The AIFM Directive’s Negative and complicate, much of the discussion in our industry this year. Impact on Developing Countries— EMPEA’s Letter to the EU 4 Fundraising will remain quite challenging because LPs will remain cash constrained until exits from their Western buyout portfolios resume. Additionally, pending regulation in Europe, if enacted in its current form, would seriously IFC’s Experience in Emerging impair the ability of non-EU GPs to raise capital from EU investors. Markets Private Equity 6 In early March, EMPEA issued a letter to the Spanish Presidency of the Euro- pean Union (reprinted in this issue) articulating concerns about the “third The ILPA Principles: How Will country” provisions of the proposed EU Alternative Investment Fund Man- They Shape LP-GP Relationships ager (“AIFM”) Directive. These provisions would deter EU investors from in Emerging Markets? 12 investing outside the EU. EMPEA’s letters joined a chorus of objections from ILPA, EVCA, the BVCA, and the US Treasury Secretary, along with a host of others. EMPEA continues to voice its concerns as the debate over the final 2009 Emerging Markets AIFM Directive terms work their way through the European policymaking Private Equity Fundraising process. and Investment 15

EMPEA has always been an advocate of strong LP-GP relations, as they serve the interests of the entire industry. Today’s fundraising environment will be News and Data characterized by some of the most robust dialogue between LPs and GPs to date, encapsulated by the ILPA Principles released in 2009. EMPEA has been Featured Events 10 working closely with ILPA and development finance institutions to facilitate a dialogue on the significance of the principles for our members. Our efforts include a webcast that drew over 160 participants, a summary of which you’ll Funds Launched & Closed 16 find in this issue. EM PE Performance 17 As LP funding does come back to the market, it’s more important than ever to demonstrate the return potential of the asset class. As one of the largest investors in emerging markets private equity, the International Finance Member News 18 Corporation (IFC) is in a position to judge return potential across developing countries. Drawing on nearly two decades of experience, the IFC’s David Wilton shares the IFC’s track record, and challenges some fundamental Notable EM PE Exits & IPOs 20 assumptions about the risks and opportunities within emerging markets PE.

We will be sharing updates on these and other critical issues facing the indus- EMPEA Members 21 try at the 12th Annual Global Private Equity Conference on May 11–12 at the Ritz Carlton in Washington, DC. I sincerely hope to see you there, if not earlier at the Members-only Reception the evening of May 10th. Sarah Alexander, President and CEO Emerging Markets Private Equity Association

1055 Thomas Jefferson St. NW, Suite 650 • Washington DC 20007 • Phone: +1.202.333.8171 • Web: empea.net Emerging Markets Private Equity

About EMPEA Editorial Director Jennifer Choi The Emerging Markets Private Equity Associa- tion (EMPEA) is a non-profit, independent, glob- Writing and Research al industry association that promotes greater Ted Hickey understanding of and a more favorable climate Harrison Moskowitz for private equity and venture capital investing Nadiya Satyamurthy in the emerging markets of Africa, Asia, Europe, Latin America and the Middle East. Guest Contributor David Wilton, IFC EMPEA was founded in 2004 with the belief that private equity and venture capital can be Creative Direction & Production Management critical drivers of economic growth in emerging Greg Farmer markets while simultaneously generating strong returns for investors. Executive Editor Carlos Perry In support of its mission, EMPEA: • Researches, analyzes and disseminates au- Production Assistance thoritative information on emerging markets Blue House private equity; www.bluehouse.us

• Convenes meetings and conferences around © 2010 Emerging Markets Private Equity Association the world to promote information exchange between leading fund managers and institu- All rights reserved. Emerging Markets Private Equity Quarterly Review is a tional investors; publication of the Emerging Markets Private Equity Association. Neither this publication nor any part of it may be reproduced, stored in a retrieval sys- • Offers professional development programs tem, or transmitted in any form or by any means, electronic, mechanical, to enhance knowledge transfer; and, photocopying, recording, or otherwise, without the prior permission of the Emerging Markets Private Equity Association. • Collaborates with stakeholders from across the globe. Subscriptions For subscription or single issue purchase, visit www.empea.net or email empea@ empea.net. Subscription for one year (4 issues) is US$995. EMPEA members receive the Emerging Markets Private Equity Quarterly Review for free.

Advertising Opportunities The Emerging Markets Private Equity Quarterly Review offers readers an Become a Member analytical and factual look at private equity investing in emerging markets. The Quarterly Review features include regional and country market anal- The Emerging Markets Private Equity Associ- ysis, an overview of current trends in the industry, benchmark data from ation is the only global body that represents Cambridge Associates, and guest articles from leading thinkers and prac- the growing industry of emerging markets titioners. Its readership comprises a broad array of private equity fund private equity. As a leading global player, managers, institutional investors, service providers, and other key stake- EMPEA offers features that meet the needs holders in the industry from more than 50 countries. of a broad range of institutions active in emerging markets, including General Part- Advertising opportunities are available for upcoming issues. For more ners (GPs), Limited Partners (LPs), business information, please contact Greg Farmer at [email protected] or call associations, service providers, multilateral +1.202.333.8171. and academic institutions, and governmen- tal bodies.

For more information on how to become a member, visit empea.net, contact Kyoko Terada at [email protected] or call her at +1.202.333.8171.

1055 Thomas Jefferson Street NW • Suite 650 • Washington, DC 20007 USA Phone: +1.202.333.8171 • Fax: +1.202.333.3162 • Web: empea.net

2 Emerging Markets Private Equity Association Latin America and Caribbean Seminar At the IFC’s 12th Annual Global Private Equity Conference in Association with EMPEA 12 May 2010

This intensive half-day seminar, supported by LAVCA, will include a keynote delivered by His Excellency Luis Miguel Valdivieso Montano, Ambassador of Peru, and several dynamic panels covering the evolving Bra- zilian private equity landscape, the emergence of local institutional investors, the developing PE industries of Chile, Peru, Mexico and Colombia, as well as the changing face of the Caribbean private equity industry.

Speakers include: • Joaquin Avila, Managing Director, EMX Capital • Antonio Bonchristiano, Co-Chairman and Co-CEO, GP Investments • Haydee Celaya, Private Equity and Investment Funds Director, International Finance Corporation • Sidney Chameh, Chairman, ABVCAP and Partner, DGF Investimentos • Álvaro Gonçalves, Managing Partner, Stratus Investimentos • Luis A. Harvey, Senior Managing Director, Nexxus Capital • Michael Lee-Chin, Chairman, Portland Private Equity • Mark Ramsey, Executive Director and President, Macquarie Capital • J. Scott Swensen, Chairman, Conduit Capital Partners, LLC • Christian Warnholtz, Partner, WAMEX Fondo MIF …and many more! For more information, please visit globalpeconference.com

Quarterly Review Vol VI Issue 1, Q1 2010 3 EMPEA’s Letter to the EU on AIFM Directive’s

March 3, 2010

The Spanish EU Presidency

Ms. Elena Salgado Mendez Vicepresidenta Segunda y Ministra de Economía y Hacienda c/ Alaclá, 9 Madrid, Spain

Cc: Ms. Dolores Duran Bono

Dear Minister Salgado Mendez,

On behalf of the Emerging Markets Private Equity Association (EMPEA), I am writing to express our concerns regarding the Alternative Investment Fund Managers (AIFM) Directive and to highlight its potential negative impact on our members and more generally on economic development in emerging economies.

EMPEA is a non-profit, independent, global industry association whose mission is to promote the development of private equity and venture capital investment in the emerging markets of Africa, Asia, Europe, Latin America and the Middle East. EMPEA represents 280 fund managers and institutional investors headquartered in more than 40 developing countries, and its membership includes the most active European development banks that invest in private equity funds in developing markets.

Private equity investment is a critical driver of economic growth and job creation in developing countries, while simultaneously generating strong returns for investors. Since 2005, such funds have raised more than US$200 billion for targeted investments into developing countries, providing a crucial source of capital for businesses in markets where private capital is very difficult to access.

EMPEA has profound concerns regarding the potential consequences that the proposed AIFM Directive will have on emerging economies. If adopted in its current form, AIFs in developing countries could lose access to funding from the EU market, and EU investors, including EU member development banks, would be limited in their ability to promote private sector growth in the world’s poorest countries.

Specific provisions of the Directive would greatly restrict the possibilities for AIFs to be marketed in Member States by fund managers based in emerging markets (“Emerging Markets Fund Managers”). The third country and equivalency provisions contained in the draft Directive would make it either legally impossible or cost-prohibitive for Emerging Markets Fund Managers to raise capital in various EU markets, jeopardizing their ability to raise sufficient funds for investment and therefore to be viable as going concerns. EMPEA estimates that more than 90% of its fund manager members currently either market their funds to or have as investors entities from within the European Union. European funding for private equity and venture capital investments is critical for economic development in Africa and other emerging markets. By funding small businesses, private equity and venture capital investment spurs job creation, among many other benefits. Likewise, investors (Limited Partners) from the EU, including Euro- pean development banks, would be unable to invest in funds managed by Emerging Markets Fund Managers and would therefore be unable to meet their economic development and/or return objectives. European development banks have long recognized that investing in the private sector in developing economies is the most effective way to have an impact on poverty reduction, and doing so via specialized, local funds has the greatest potential to provide a developmental impact, in addition to an economic return.

The equivalency provisions are additionally of significant concern. Any requirement that may only allow funds to be marketed by Emerging Markets Fund Managers where appropriate cooperation arrangements are in place between the competent authority of that Member State and the competent authority of the AIFM is likely to frustrate

Emerging Markets Private Equity Association 1055 Thomas Jefferson Street NW • Suite 650 • Washington DC 20007 • USA

Phone: +1.202.333.8171 Fax: +1.202.449.1165 Email: [email protected] Web: empea.net

4 Emerging Markets Private Equity Association Negative Impact on Developing Countries

Since 2009, the European Union (EU) has been considering a Direc- In March, EMPEA submitted the letter reprinted on the following tive to regulate Alternative Investment Fund Managers (AIFMs), pages to the Spanish Presidency of the EU, along with similar let- including private equity fund managers and limited partners who ters to the European Commission and European Parliament. It is invest in such funds. The stated intent of the Directive is to create uncertain whether a final vote will take place under the Spanish supranational regulation of fund managers in order to minimize Presidency, which ends in June. What is certain is that some form systemic (particularly fundraisingcross-border) by managers risk and basedenhance in some investor of the pro- least developedof regulation economies, will wherebe enacted, such arrangements likely this year. are unlikelyCompromise propos- tections through greaterto be transparency put in place. Indeed,and other such measures. arrangements are likely toals either continue force thoseto be Emerging submitted, Markets and Fundwith Managersmore than to one thousand cease soliciting investors in the EU or, for those who are able, force them to relocate their management activity from the least developed economies to those which are moreamendments developed, thereby to the undermining Directive underthe growth review, of nascent the outcome for the The Directive as writtenfund management includes provisions industries on in such capital economies. require- third-party provisions remains unclear. EMPEA will stay abreast ments, the use of independent valuators and depositaries, of the Directive as it continues to be shaped by various institu- disclosure requirements,Further, limitations even if a third on leverage,country were and able remuner- to meet the requirementstions and will of thecontinue equivalency to communicate test, the financial its potentialexpen- effects on ation provisions. In addition,diture involved and inof complyingparticular with concern, provisions are related the to anour independent industry. valuer, custody arrangements, disclosure, third-party provisionsreporting that could requirements greatly restrict and other or administrativemake it much requirements would be cost-prohibitive for funds that are generally small (US$100-US$500 million). We would note that the exemption applicable to AIFMs who manage portfolios of more difficult for AIFMsAIF belowbased ain threshold emerging of EURmarkets 100 million to raise or EURcapital 500 millionMembers (subject canto certain access criteria) more is only information available to AIFMs through in the Industry in the EU, and for EU Memberinvestors States. to invest By not in extending non-EU thisfunds. exemption to AIFMsBulletin based outside section of of Member the EMPEA States, webpage.such non-EU AIFMs are placed at a significant disadvantage to their EU counterparts.

Our understanding is that the aim of the Directive is protection against systemic risk. We would submit that there is no systemic risk presented by such funds, and cannot understand why the EU would seek to prohibit funds managed by Emerging Markets Fund Managers from seeking investors or making presentations in the EU. At a minimum, the fundraisingmanagers by of managers such funds based should in somebe in aof position the least to developedlawfully respond economies, to inquiries where from such EU arrangements investors. are unlikely to be put in place. Indeed, such arrangements are likely to either force those Emerging Markets Fund Managers to ceaseTherefore, soliciting on investors behalf our in the members, EU or, for we those are registering who are able, our concernsforce them about to relocate the negative their management impact the draft activity Directive from will thehave least on developed this important economies source to of those development which are capital more and developed, request thatthereby the directiveundermining be amended the growth to allow of nascent Emerging fundMarket management Fund Managers industries to inmarket such economies.their funds in the EU under a regime similar to the private placement one now in place. We would be happy to discuss this issue with you in more detail and, if you are amenable, to outline our sug- Further,gested even amendments if a third country to the draft were Directive. able to meet the requirements of the equivalency test, the financial expen- diture involved in complying with provisions related to an independent valuer, custody arrangements, disclosure, reporting requirements and other administrative requirements would be cost-prohibitive for funds that are generally smallSincerely, (US$100-US$500 million). We would note that the exemption applicable to AIFMs who manage portfolios of AIF below a threshold of EUR 100 million or EUR 500 million (subject to certain criteria) is only available to AIFMs in Member States. By not extending this exemption to AIFMs based outside of Member States, such non-EU AIFMs are placed at a significant disadvantage to their EU counterparts.

Sincerely,

Sarah E. Alexander President and Chief Executive Officer

Attachments: EMPEA Board of Directors and Advisory Council EMPEA Members

Quarterly Review Vol VI Issue 1, Q1 2010 5 IFC’s Experience in Emerging Markets Private Equity

David Wilton, Chief Investment Officer of the International Finance Corporation’s (IFC) Investment and Private Equity Funds Department, shares the following myth-busting analysis of the true return potential of emerging markets private equity investing, and details some of the challenges facing a still-nascent industry.

IFC has been investing in private equity funds in emerging markets important points to consider, however we think there are factors since the early 1990s and created a department dedicated to fund at the operating level in private equity in emerging markets worth investments in 2000. This article touches on the highlights of this consideration for a more informed picture of the risks. nearly two decades of experience. The take-aways from our experience are: Downward trending risk—Since 2000 several dynamics have been at work gradually de-risking emerging markets private equity. They • The opportunity is geographically much more diverse than the are, in summary, (i) the emergence of local private equity capac- concentration of capital raising in Asia would suggest. There are ity across a wide range of countries, (ii) the longer experience of both return and diversification benefits from taking advantage private equity and associated longer track records, and (iii) strong of the broader opportunity. domestic growth permitting private equity firms to invest primar- ily in companies linked to domestic demand rather than export. • Emerging markets private equity is less risky than commonly perceived due to risk mitigants at the operating level. The most important of these trends is the emergence of local • To invest successfully, due diligence needs to go beyond exami- private equity capacity. Private equity is a very local business. Con- nation of track record and into the fit between specific strategic sequently, competent local capacity is very important to managing approach and medium-term local conditions. risks. IFC has repeatedly seen this to be true, especially as one goes below the level of large international-scale companies—which is The Opportunity is Very Broad where most future deal flow lies. Access to transactions requires the right local connections to build trust and credibility with com- Around 60–70% of capital raised for emerging markets private pany owners; adequate due diligence depends on an intimate equity in the last four years has been raised for Asia. And yet, as knowledge of local accounting, governance and regulatory quirks; indicated by Exhibit 1 which shows our reading of the global EM attracting quality executives to investee companies requires suffi- PE opportunity, the investable geography is considerably broader. cient trust and belief in the GP for local executives to leave safe and prestigious positions; and, finally, local knowledge helps to obtain Taking advantage of the full opportunity and investing across a the best access to limited local debt finance. wide range of regions is surprisingly beneficial. Exhibit 2 compares the returns of the top quartile funds in the Cambridge Emerging Growth in the supply of local private equity capacity has followed Market Index to top quartile performers in the Cambridge Asia ex- growth in demand for advice and guidance: an increasing number Japan Index and in IFC’s private equity fund investments from 2000 of growth-oriented firms are willing to allow activist investors to up to different dates pre- and post-crisis. have influence over corporate strategy. In 2000, we considered only the BRICs and South Africa to have adequate influence/con- The first point to notice is that, over the periods measured, the trol deal flow to support dedicated country funds. Outside those Cambridge Emerging Markets Top Quartile is consistently higher countries, deal flow was thin enough that, to get adequate selec- than the Cambridge Asia ex-Japan Top Quartile, indicating that tivity, regional coverage was required. But, with regional coverage, there is benefit in diversifying beyond Asia. The second point is that IFC’s returns across the entire PE portfolio have exceeded even how do you afford the resources required to be truly local in each the Cambridge EM Top Quartile over the same period. Part of the country? As Exhibit 1 shows, there is now enough deal flow to reason for IFC’s average performance relative to the Top Quartile support dedicated country funds in many more countries than ten is that IFC, following its development mandate, has invested very years ago. broadly. For example, IFC’s exposure to Africa is 14% versus the Index’s weighting of 2%. While 70% of the Cambridge Index is Growth in attractive deal flow to support local private equity weighted to Asia ex-Japan, only one-third of IFC’s exposure is to capacity has been driven by (i) deregulation of domestic markets Emerging Asian markets. The data from IFC’s portfolio illustrates in the 1990s which spurred the growth of private enterprises and that private equity can deliver attractive returns across all regions (ii) reduction in barriers to trade and capital flows in the 2000s. For of the emerging markets. example, trade flows (exports + imports) grew from 38% of Chi- na’s GDP in 1999 to 70% by 2008, and from 25% of India’s GDP to Emerging Markets Private Equity is Less well over 50% over the same period. Greater exchanges of goods Risky than Commonly Perceived and investment capital heightened the need for improved business practices at internationally competitive levels and created opportu- In looking at the emerging markets, investors tend to focus nities for regional and international expansion. In turn, owners of on macro and political risks and legal system and governance companies became increasingly open to partnership with, or sale issues, ultimately concluding the risks are high. These are indeed to, third parties with the skills to help grow their companies. The

6 Emerging Markets Private Equity Association IFC’s Experience in Emerging Markets Private Equity, continued

Exhibit 1: IFC’s View of the Global EM PE Opportunity

Developed Single country Regional grouping required

Note: Graphic reflects IFC analysis of the investable funds universe in the emerging markets, i.e., “single country” indicates markets in which country-dedicated vehicles are available for investment; “regional grouping required” indicates markets accessible via regional funds. extent of this opening up is illustrated by the Franklin Institute’s Low leverage—Private equity in emerging markets is based upon Economic Freedom of the World (EFW), which shows a strong growth, not financial gearing. The average compounded annual trend toward deregulation of domestic markets in the 1990s. revenue growth of IFC-invested funds’ portfolio companies is 37.8% (median 19.5%). The average debt-to-equity ratio for these Focus on Domestic Growth—Associated with domestic market same firms is 0.74 (median 0.33). While these low levels of debt liberalization is the growth-off-a-constrained-base which creates naturally reflect the underdeveloped nature of local financial sys- domestic momentum somewhat insulated from global macro tems, they also contribute to considerable resilience in a downturn. trends. The large majority of companies in which IFC-backed funds have invested (72%) are focused on domestic or regional growth Relatively less competition for transactions—Despite the strong opportunities. Interestingly, this growth in domestic consumption growth in capital committed to private equity in emerging markets and manufacturing appears to be captured earlier in private equity than in the listed markets. A comparison of the sectors in which between 2005 and 2008, private equity commitments as a per- companies in IFC-backed funds operate compared to the sectors centage of GDP, even for the BRICs, remain well below the levels in in the MSCI EM + Frontier Index shows private equity to have sig- developed markets. While part of this is structural—without access nificantly greater exposure to the Consumer Discretionary (26.4% to debt finance, slower growing companies cannot be made into vs. 5.6%), Industrials (10% vs. 6.7%), Telecommunications Services suitable private equity transactions—emerging markets remain rel- (18.3% vs. 9.1%) and Healthcare (4.9% vs. 2.2%) sectors. atively under-penetrated.

Exhibit 2: Private Equity Performance Benefits from Diversification IRR from 2000 to... Sep-08 Dec-08 Mar-09 Jun-09 Sep-09

IFC – All Private Equity Funds 22.9% 15.6% 14.4% 15.9% 17.0% Cambridge EM Top Quartile 16.9% 10.7% 9.4% 10.3% 12.7% Cambridge Asia ex-Japan Top Quartile 14.9% 10.6% 6.6% 8.5% 9.0%

Source: IFC Portfolio, Cambridge Associates LLC.

Quarterly Review Vol VI Issue 1, Q1 2010 7 IFC’s Experience in Emerging Markets Private Equity, continued

Misperceptions—Three widely held misperceptions are that: (i) the Exhibit 4: Comparative IRRs by Vintage Year minority positions common in emerging markets private equity are too risky due to lack of proper legal systems, governance and trans- 30% parency; (ii) emerging markets private equity faces constrained exit 25% ■ All opportunities and therefore emerges slowly from the J-Curve; and ■ PE Funds Only (iii) small companies are risky and it is too risky to compound small 20% company risk with emerging markets risk. In our experience none of these perceptions is true. 15%

Exhibit 3 compares median and average IRRs of companies in IFC- 10% backed funds for minority and majority positions across different IRR, net exit routes: minority positions have been very successful, for rea- 5% sons elaborated on below. Exhibit 4 shows IFC’s returns by fund 0% vintage year. As of December 2009, 2007 vintage funds had already emerged from the J-Curve. Exhibit 5 indicates that experi- -5% ence has been positive with deal sizes as low as US$2 million. -10% Due Diligence in Emerging Markets— 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Lessons from IFC’s Experience Source: IFC fund investments by vintage year as of Dec 2009; Cambridge Associates LLC. Due diligence in developed markets focuses on verification of track record, attribution of track record and assessment of team stability. In emerging markets it is necessary to probe further, firstly into the workings of the private equity model itself in the local environ- Taking this relationship between the GPs skill set and drivers ment and secondly to assess the stability of the model in the rapidly of returns to emerging markets and reversing it, the question evolving and dynamic environment that characterizes most emerg- becomes, “If the local deal flow looks like x, what skill set is best ing markets. suited to execute the appropriate strategy?” As noted above, there is little leverage available in most emerging markets, so growth is an Due diligence needs to match the GP’s skills to the deal flow— important component of the majority of transactions. In most situ- During my time managing the World Bank Pension Fund’s private ations it is important to have a GP team with the right skills to help equity portfolio in the 1990s, we looked into how each of our funds companies grow and deal with the complexities of corporatization. made its returns—simplistically put, what combination of leverage, multiple expansion, revenue growth and improved efficiency was The GP’s value-added skills are especially important given the prev- behind the returns. We found there was, at a general level, a rela- alence of minority positions. IFC’s 1990s fund investments were tionship between the drivers of the IRR and the background of littered with minority positions which had not worked. Investi- the GP’s team. For example, teams heavy with investment bank- gating this, it appeared that minority positions worked well when ers tended to use leverage more as a return driver and teams heavy the GP was seen as a partner by the majority: GPs were viewed with former company managers tended to favor revenue growth as partners when they were seen to make valued contributions to and efficiency. growing and improving the business. If the GP was seen as an intel-

Exhibit 3: Comparative Exit IRRs for Majority and Minority Positions in IFC-invested Funds 100% 100% 90% 90% ■ Majority ■ Majority 80% 80% ■ Minority ■ Minority 70% 70% 60% 60% 50% 50%

IRR, net 40% IRR, net 40% 30% 30% 20% 20% 10% 10% 0% 0% IPO/Listing Trade Sales MBO Structured Exit IPO/Listing Trade Sales MBO Structured Exit Median IRR Mean IRR Source: IFC Portfolio.

8 Emerging Markets Private Equity Association Exhibit 5: Comparative IRRs by Investment Size Exhibit 6: Comparative IRRs, First Time Funds and Non-First Time Funds, Pre- and Post-Crisis 80% Pre-crisis, 50% of Post-crisis, return distributions 70% ■ Mean First Time Funds backed by IFC for First Time and Non-First 60% ■ Median had IRRs above 20% Time Funds were similar 50% 100% 40% 30% 80% IRR, net 20% 10% 60% 0% IRR, net -10% 40% -20% 20% $1–2m $2–3m $0–1m $4–5m $3–4m $5–6m $6–8m $50m+ $8–10m $10–15m $15–20m $20–30m $40–50m $30–40m

Source: IFC Portfolio. 0% First Time Non-First Time First Time Non-First Time (June 2008) (June 2008) (June 2009) (June 2009) ligent person and a good sounding board, but nothing more, there ■ >20% ■ 15–20% ■ 10–15% ■ 0–10% ■ <0% was no feeling of partnership, and this led to problems when the Source: IFC Portfolio. deal went well, and different problems when it went badly. to have affected both first time and non-first time funds equally. When a deal was successful, the majority resented sharing the full Part of this success is attributable to selecting GPs with the skills equity up-side with a passive partner and found ways to reduce required to manage the type of deal flow particular to a given the minority’s return to the level of enhanced debt. When a deal market. In addition, relatively lower levels of competition for trans- struck difficulties, the majority read the shareholders agreement actions also contributes to relatively stronger performance. In a less more carefully, became frightened by the wide rights of the minor- competitive environment where there is less time-pressure on deci- ity, and became obstructionist or at worst resorted to criminal sion making, newly minted GPs have more time to think through action to protect themselves from the potential exercise of draco- transactions and are not driven into errors of judgment through nian minority rights. haste. However, as markets mature, competition and time pressure on decision making will increase, increasing the risk in backing The success of minority positions in Exhibit 3 is attributable to the first time funds. GP being both local enough and having the right skills to be viewed as a partner by the majority. In closing, to invest successfully in markets that continue to evolve, due diligence must include a closer examination of what drove past Past Performance is Not Necessarily the Gold Standard in Evolving returns and ask whether this strategy has the potential to achieve Conditions—As change in emerging markets is constant, the pre- the same degree of success in the future with the same level of risk. dictive power of past track records may be less than in developed LPs should also ask if the GP’s team has the right mix of skills to be markets. Indeed, we have not seen a clear performance discount able to adapt to changing conditions. for first time fund managers. As a result, rather than simply verify- ing the track record and attribution to the team, it is necessary to enquire further into the strategy that generated the track record David Wilton is Chief Investment Officer for IFC’s and whether conditions are likely to remain favorable for that strat- Private Equity and Investment Funds Depart- egy in the years to come. ment with responsibility for IFC’s investment program in emerging market funds globally, and The process for evaluating first time fund managers will, by neces- a member of the Pension Finance Committee of sity, have to evolve as private equity further develops and these the World Bank Group. David joined the Funds Department of markets mature. IFC has been successful in selecting first time IFC at its inception in 2000 and has been responsible for turn- managers: Exhibit 6 shows the performance of the mature first ing around the portfolio and developing the funds strategy. time funds backed by IFC pre- and post-crisis. Before the crisis, 50% of the mature first time funds had net IRRs in excess of 20% compared to 70% of mature non-first time funds. The crisis appears

Quarterly Review Vol VI Issue 1, Q1 2010 9 2010 Events

Visit Events at empea.net for EMPEA’s calendar of upcoming industry events.

EMPEA and EMPEA-Partnered Events Member and Industry Events

EMPEA Members-Only Cocktail Reception Unquote” 4th Annual CEE Private Equity Congress Hosted by EMPEA Premier Member Orrick, Herrington 20 May 2010 and Sutcliffe LLP The Hilton Tower Bridge 10 May 2010 London Sequoia at the Waterfront Washington, DC Chile Private Equity & Venture Capital Forum Hosted by LAVCA The IFC’s 12th Annual Global Private Equity 26 May 2010 Conference in Association with EMPEA Grand Hyatt Santiago 11-12 May 2010 Santiago The Ritz-Carlton Washington, DC The 9th HKVCA China Private Equity Summit 7 June 2010 2nd Annual Private Equity in Africa Leadership Summit Grand Hyatt Hosted by EMPEA, FT Global Events and This is Africa Hong Kong 1 November 2010 One Great George Street C5’s 15th Forum on CEE Private Equity London 10-11 June 2010 Hotel Ambassador – Zlata Husa EMPEA Pofessional Development Webcasts Prague

Upcoming Webcast: The PEI Africa Forum 2010 Evolving Key Terms & Conditions in Today’s EM PE 15-16 June 2010 Hosted by EMPEA Premier Member Debevoise Grand Connaught Rooms & Plimpton LLP London 19 May, 2010 10:00am EDT Dow Jones Limited Partners Summit 2010 22-23 June 2010 Missed April’s Webcast? Grand Hyatt, New York City EMPEA members can access Managing Environmental EMPEA members receive a 15% discount. Use discount and Social Risks and Opportunities: THE IFC E&S Toolkit code EMPEA when booking online. hosted by the International Finance Corporation and past webcasts at Webcasts at empea.net or by contact- Chatham House Conference on Investing ing [email protected]. in Emerging and Developing Markets 1 July 2010 Chatham House

Submit Your News Information for EMPEA Member News, Funds Launched & Closed and Exits is compiled from submissions to EMPEA and from a range of publicly-available news sources. We encourage firms to submit their information to EMPEA on a regular basis for possible inclusion in the Quarterly Review and to ensure the accuracy of individual firms’ fundraising, investment and exit information in EMPEA’s global emerging market statistics. For more information on how to include your news, or to submit information, please email us at [email protected].

10 Emerging Markets Private Equity Association

The ILPA Principles: How Will They Shape LP-GP Relationships in Emerging Markets?

The ILPA Principles were released in September 2009 as a set The Principles were originally drafted more with the larger of voluntary guidelines intended to establish best practices developed market funds in mind. Cash-constrained LPs were related to the alignment of interests between Limited Partners faced with the possibility of being unable to meet capital calls (LP) and General Partners (GP) around fund terms, transpar- from their existing fund commitments, while those very funds ency, reporting and fund governance. The Principles have were struggling to keep their portfolios above water. The lack since been endorsed by more than 100 institutions, including of liquidity on both sides made the alignment gap more pro- ten of the most active Development Finance Institutions (DFIs) nounced. In a world where emerging market funds battle for investing in emerging markets private equity. a share of a smaller wallet, demonstrating clear alignment of LP-GP interests is now more crucial than ever before. In February, EMPEA and ILPA co-hosted a webcast to discuss how the ILPA Principles could shape LP-GP relationships in emerging Many larger institutions wielding greater leverage in their markets. More than 160 people located in 30 different coun- negotiations with GPs have begun bringing the Principles tries listened in to the live webcast, with GPs comprising 57% of to bear in their re-up considerations and in their new man- the listening audience, and 29% representing LPs spanning the ager decisions alike. GPs increasingly report that prospective private equity fund spectrum. The balance were service provid- LPs are inquiring whether their PPMs contain terms that are ers and other industry stakeholders. EMPEA’s President and CEO “ILPA-compliant.” As few funds have actually been raised Sarah Alexander moderated the panel featuring Rick Slocum, Director of Private Investments for the Robert Wood Johnson Foundation and ILPA Private Equity Principles and Best Practices Committee Chair; Mark Kenderdine-Davies, General Counsel The objective of institutions like and Company Secretary for UK-based emerging market fund “ours is to raise living standards in of funds CDC Group; Joachim Schumacher, First Vice President and Head of the Equity and Mezzanine Department of German emerging markets by supporting the private sector. We believe that by development finance institution DEG; and Luis Miranda, Presi- “ dent and CEO of IDFC Private Equity and member of EMPEA’s implementing best practices, we can Board of Directors. encourage more investors to commit capital.

—Joachim Shumacher, DEG

Exhibit 1: The Drivers Behind the Creation of the ILPA Principles

Private Equity Struggle to Insufficient LP Liquidity Tensions Create... Bubble Bursts Preserve Runway Reserves for Constraints Alignment Gaps • Deep, global • Focus on Follow-Ons • Distribution is slow Between LPs recession operations/ • Capital calls will and GPs debt reductions/ • Debt Model Broken pick up maturities • EBITDA/comps/ extensions • Risk of market equity value of corrections portfolios

2007 2009

12 Emerging Markets Private Equity Association Exhibit 2: Key Provisions of the ILPA Principles

particular: “Hopefully this will set the standard to build off of [for the emerging markets], a framework that will validate the • European waterfall (versus deal by deal terms that DFI investors are already seeking from emerging carry distribution) Alignment of market managers.” Interest • Stengthened drawbacks • Management commitment to fund As CDC’s Mark Kenderdine-Davies observed, however, even the emerging markets saw 2006–2008 vintage funds raised under terms that would now be considered unattractive: • Stronger role for LPAC “Some GPs were rolling out funds with PPMs containing • Key person event triggers investment period developed market terms, particularly in relation to economics, suspension Governance which we’d regard as wholly inappropriate in today’s market.” • GPs as true fiduciaries, avoidance of conflicts Kenderdine-Davies echoed Schumacher’s comment to GPs of interest raising first-time or follow-on funds, that the likely response • “No-fault” divorce from DFI investors to investment proposals would be a reflec- tion of how well GPs have embraced the spirit, if not all of the provisions, of the ILPA Principles. • Free and carried calculations • Valuations, financials available quarterly Transparency However, proponents of the Principles do not advocate their • Propriety information protected from public uniform application to all funds. LPs will care about some pro- disclosure visions more than others, and will make allowances based on the individual fund’s strategy and risk profile.

For example, DFIs will be more insistent on obtaining appropriate since the Principles were released, hard evidence of their “no-fault divorce” provisions, including the carry consequences impact still remains thin. However, Joachim Schumacher of of a “no fault” divorce; European-style distribution water- DEG cautioned that, “A number of funds that raised capi- falls (carry disbursed at the close of the fund rather than on a tal previously will be requested by LPs to upgrade their LPAs deal-by-deal basis with appropriate claw-back obligations and to reflect the ILPA Principles.” Schumacher also stressed that claw-back security); 100% accrual of fee income to the fund; and DFIs evaluating first-time and frontier funds would expect repayment of claw-back amounts gross of taxes (not net). DFI to see many of the tenets of the Principles incorporated into investors claim they will typically be less insistent on other items fund documentation. in the Principles, such as “no fault” termination of investment periods; no raising of successor funds until the end of the invest- The general consensus is that alignment of interest prob- ment period; substantial GP equity interests (lower management lems have been less pronounced in emerging markets than commitment expectations may be applied to first-time funds); in developed markets. The relevance of the Principles for and significant step down of management fee percentages at EM PE funds may lie more in fund governance and disclo- the end of the investment period (especially for smaller funds). sure practices though LPs will doubtless continue to seek more aligned economics. Rick Slocum points to the Prin- Regarding a GP’s expected financial commitment to a fund, ciples as a potential boilerplate for non-economic terms in an issue of great concern to first-time funds, Kenderdine- Davies states that the GP’s commitment (i.e., its “skin in the game”) should be commensurate with the team members’ Exhibit 3: DFIs That Have Endorsed the ILPA Principles personal wealth, rather than a set percentage of the fund. Asian Development Bank (ADB) That is, LPs expect the team’s financial commitment to be suf- Belgian Investment Company for Developing Countries (BIO) ficiently meaningful to the team members to ensure that the GP’s financial interests are aligned with those of the LPs. CDC Group—UK DEG—Germany By contrast, institutional investors applying the Principles Export Development Canada (EDC) to their developed market buyout and venture funds have significant management commitment expectations, which The Finnish Fund for Industrial Cooperation (Finnfund) could rise well above 2% on average, along with a strong Industrialisation Fund for Developing Countries (IFU)—Denmark bias against fee waivers (i.e., application of management The Netherlands Development Finance Company (FMO) fees against the commitment hurdle in lieu of personal funds). In addition, while a “50/50 split on fees is undesir- The Norwegian Investment Fund for Developing Countries (Norfund) able to most LPs,” according to Slocum, LPs may accept deal Proparco—France fees split 80/20 back to the fund.

Quarterly Review Vol VI Issue 1, Q1 2010 13 The ILPA Principles, continued

Exhibit 4: Core Areas of GP Concerns the GPs for that. You have to take into account the tax author- Related to the Principles ity of the country where the GP operates,” he advised. “GPs should be getting fat off of carry and not fees, but good GPs • Headline management fees versus budget should be able to command a higher price than bad ones.” He • No fault investment period suspension also cautioned that smaller funds face fundamentally differ- • Key persons mechanics ent economics than do large funds. • Repayment of clawback (gross of tax, joint and several versus several only) While aligning interests between LPs and GPs is critical, GPs • Capped indemnification expenses with longer-lived funds must also align incentives with the • Application to captives, semi-captives team, an acute challenge in markets where good talent can • Distribution of carry (waterfalls) be lured away by the promise of more attractive near-term compensation. “For an infrastructure fund with a 10 to 15 • Transaction fees split year life, it’s important to install the right incentives to keep the team intact for the duration of the fund,” commented Miranda.

There is a natural tendency towards “In emerging markets, you do have turnover risk with a Euro- pean waterfall structure. In markets where private equity is “worsening terms. The thinking behind still relatively new, the promise of future compensation is

implementing the Principles in the vague and hard to envision, so you do face a higher risk that

emerging markets is that there will good team members will walk for an attractive offer,” said Slocum. “The large global brands were able to use fees gener- be less deterioration than you may see ated elsewhere to attract good local talent while building up otherwise. We hope that“ by addressing operations in new markets,” he added. the issues now, we can prevent future tensions in LP-GP relationships in the Nonetheless, emerging market GPs should expect more LPs to seek back-ended waterfalls, according to Slocum. “It’s a emerging markets. good practice to have because it further encourages the GP to behave like an investor,” he noted. —–Rick Slocum, ILPA Endorsing institutions labor against the accusation that the As some veteran investors in private equity have observed, the Principles represent a club for bullying GPs. Many, including swinging pendulum in the LP-GP dynamic is nothing new. In DEG’s Schumacher, see this as an opportunity to simplify and fact, many LPs see the Principles as simply an articulation of facilitate the fundraising process. “The objective of institu- investors’ collective desire to return to the pre-boom normal, tions like ours is to raise living standards in emerging markets before terms and fund sizes got “out of hand.” by supporting the private sector. We believe that by implementing best practices, we can encourage more investors to IDFC Private Equity’s Luis Miranda, the lone GP on the webcast commit capital.” panel, affirmed that the industry had in fact gotten carried away, but asserted that “emerging market funds were good The objective, according to ILPA’s Slocum, is to establish the on several of these issues when compared to Western funds.” Principles as the de facto standard set of best practices for the He pointed out that many emerging market GPs, including his industry globally. “There is a natural tendency towards wors- own firm, had already implemented several of the Principles, ening terms. The thinking behind implementing the Principles such as “no fault” investment period suspension, key person in the emerging markets is that there will be less deterioration mechanics and repayment of claw-back monies. than you may see otherwise. We hope that by addressing the issues now, we can prevent future tensions in LP-GP relation- Miranda questioned whether the pendulum had in fact swung ships in the emerging markets.” too far to the other side—echoing a sentiment perhaps shared by many GPs listening in. He pointed to a few provisions in particular that pose challenges for the majority of emerging The full text of the Principles, as well as a list of endorsing insti- market managers, such as the repayment of claw-back gross tutions, is available on the ILPA website (www.ilpa.org). Mem- of tax, the fixing of fees based only on expenses and the rear- bers can access a replay of this webcast, and information on ending of carry to the team. upcoming webcasts at www.empea.net/Main-Menu-Category/ Webcasts.aspx. “LPs need to realize that the issue of net versus gross on tax is important because GPs will have a very difficult time getting tax back from the authorities and you don’t want to penalize

14 Emerging Markets Private Equity Association 2009 Emerging Markets Private Equity Fundraising and Investment

Fundraising for emerging markets-dedicated private equity Exhibit 1: Funds Raised by Regional Focus (EM PE) funds slowed in 2009, but investment activity was US$ Billions 2007 2008 2009 comparatively strong. Emerging markets captured 9% of global private equity fundraising and 26% of global private Emerging Asia 28.7 39.7 15.9 equity investment, with deal activity by transaction volume CEE & CIS 14.6 5.6 1.6 down by only 11%. Latin America / Caribbean 4.4 4.5 2.2 A total of 196 private equity funds focused on emerging mar- MENA 5.3 6.9 1.1 kets raised US$22.6 billion in 2009, a 66% decline from the Sub-Saharan Africa 2.0 2.2 1.0 record-breaking US$66.5 billion raised by 210 funds in 2008. The decline in new fund commitments was on par with an Multi-region 4.1 7.7 0.8 estimated 65% decrease in fundraising in developed mar- Emerging Markets 59.2 (204) 66.5 (210) 22.6 (196) kets. Private equity investment in emerging markets totaled (No. Funds with closes) US$22.1 billion across 674 deals, a 54% fall in value but only Source: Emerging Markets Private Equity Association. an 11% drop by number of transactions.

Emerging markets captured 26% of global private equity Exhibit 2: EM PE Activity as Percent of Global Total investment, versus only 7% in 2004, with US$22.1 billion 30% invested across 674 deals. Falling transaction sizes contributed to a 54% drop in total investment value, while the number of ■ Funds Raised, % Global 26% PE transactions fell by only 11% in 2009. This compares to ■ Investment, % Global a 79% decrease in value and 50% fewer deals in developed markets. 20% 19%

Emerging Asian markets captured 63% of investments by 14% value, and 70% of emerging market private equity transac- 12% 11% tions by number in 2009, with China accounting for US$6.3 10% 9% 9% billion and India capturing US$4 billion. Robust activity in 10% 8% Emerging Asia offset declines in other markets. Deal activity 7% 7% in Emerging Asia by number of transactions fell by only 5%; (US$ Billions) % of Global Total 4% the number of transactions in emerging markets ex-Emerg- ing Asia was down 21%, versus a drop by 50% or more in 0% developed private equity markets. 2004 2005 2006 2007 2008 2009 The slowdown in fundraising spanned all markets and regions, Source: Emerging Markets Private Equity Association. from a 50% decline in funds raised for Latin America, to an 84% decrease in new commitments to Middle East/North For the detailed report, visit empea.net or contact Jennifer Choi Africa-dedicated funds. Emerging Asia fund commitments fell at [email protected] 60%, but their share of total capital raised grew from 60% in 2008 to 71% in 2009. China-dedicated funds accounted for US$6.6 billion of the US$15.9 billion raised for Emerging Asia. China funds’ share of fundraising grew from 22% in 2008 to 29% of the emerging markets total in 2009. India-dedicated funds raised US$4 billion in 2009, or 18% of the total. As a group, funds focused on the BRIC markets accounted for US$11.5 billion raised versus US$26.6 billion in 2008.

Quarterly Review Vol VI Issue 1, Q1 2010 15 Submit news on funds launched & closed to [email protected] Funds Launched & Closed (Details on page 10)

Sampling of Emerging Markets PE Funds Launched (YTD2010) PE Firm Fund Name (Target/Size) Geographic Focus Fund Focus The Carlyle Group Carlyle Asia Partners RMB Fund China Growth/Expansion Citadel Capital Africa Joint Investment Fund (US$150m) East Africa, Africa Co-investment EFG-Hermes Private Equity EFG-Hermes Syrian Private Equity Fund Syria Growth/Expansion (US$200m) Everstone Capital Indivision India Partners II (US$550m) India Growth/Expansion Finam Capital Finam Technology Fund II (US$100m) Russia, CIS Technology, Media, Telecommunications (TMT) First Eastern Investment Group First Eastern Dubai Fund (US$250m) United Arab Emirates Growth/Expansion Gavea Investimentos Gavea Fund IV* Brazil Buyout Latitude Sur Latitude Sur Renewable Energy Fund* Chile Renewable Energy (US$30m) Nexxus Capital Fideicomiso Nexxus IV Mexico Growth/Expansion NRG Private Equity Advisors Volga River Growth Fund (US$250m) Russia, CIS Mezzanine Wermuth Asset Management Greater Europe Private Equity Fund (US$200m) Russia, CIS Consumer

Sampling of Emerging Markets PE Funds Registering Closes (YTD2010) Geographic Funds Raised to PE Firm Fund Name (Target/Size) Focus Fund Focus Date (Status) Abraaj Capital Abraaj Palestine Investment Fund Palestine SME US$15m (First) (managed by Riyada Enterprise Development) (US$50m) Aditya Birla Capital Advisors Aditya Birla Private Equity Fund India Generalist US$148m (First) Private Limited (ABCAP) (US$250m) Aureos Capital Aureos Africa Fund (US$381m) Africa Generalist US$381m (Final) BaltCap Management BaltCap Latvia Venture Capital Fund Latvia SME US$32m; €22m (First) (US$43m; €30m) CITIC Capital Partners CITIC Capital China Partners II (CCCP II) China Growth/Expansion US$925m (Final) (US$925m) Foursan Group Foursan Capital Partners I (US$200m) MENA Growth/Expansion US$100m (First) Gulf Capital Gulf Capital Equity Partners II (US$544m) MENA Growth/Expansion US$544m (Final) Infinity Group Six China Regional JV Funds* (US$513m; China Growth/Expansion US$205m; RMB1.4B RMB3.5B) (First) JP Morgan Asset Asian Infrastructure & Related Resources Asia Infrastructure US$859m (Final) Management Opportunity Fund (US$859m) Kingdom Zephyr Africa Pan-African Investment Partners II (PAIP Africa Growth/Expansion US$492m (Final) Management II) (US$492m) Mezzanine Management Accession Mezzanine Capital III LP CEE & CIS Mezzanine US$178m; €130m Central Europe (US$420m; €300m) (First) Spring Capital Asia Spring Capital Asia Fund (US$200m) China Growth/Expansion US$184m (Second) Tuninvest-Africinvest Group Africinvest II (US$194m; €143m) Africa Growth/Expansion US$186m; €137m (Fourth) TVM Capital TVM Capital MENA MENA Healthcare US$40m (First)

*Exact fund name unknown.

16 Emerging Markets Private Equity Association Emerging Markets Private Equity Performance

Emerging markets venture capital and private equity (EM VC and One-year net IRRs for the Asian Index jumped from -11.67% to PE) funds continue to collectively demonstrate improved returns in 2.52% from June to September 2009, while one-year returns for comparison to the prior quarter, according to Cambridge Associ- the Latin American Index rose from -21.81% to 5.35% during the ates’ most recent benchmark statistics. As of September 30, 2009, same time period. CEE/Russia also showed marked improvement the EM VC and PE Index generated one-year net IRRs of 0.25%, with one-year returns climbing from -41.7% to -16.87%. up from -17.55% as of June 30, 2009, and entering positive ter- ritory for the first time since June 30, 2008. Asia, Latin America EMPEA members can access the latest Cambridge Benchmark and CEE/Russia all witnessed better performance. Both the Asian statistics through the members-only website. Please contact and Latin America Indices returned to positive one-year returns. [email protected] for assistance.

Exhibit 1: Emerging Markets PE & VC Performance (as of 30 September 2009)

60%

50%

40%

30%

20%

10%

-10%

-20% — 1 Year — 3 Year — 5 Year — 10 Year -30%

-40% Mar 06 Sep 06 Mar 07 Sep 07 Mar 08 Sep 08 Mar 09 Sep 09

Source: Cambridge Associates LLC Proprietary Index: pooled end-to-end returns, net of fees, expenses and carried interest.

Exhibit 2: Comparative End-to-End Returns by Region (as of 9/30/2009) Index One Year Three Year Five Year Ten Year Emerging Markets VC & PE 0.25 8.05 12.83 6.63 Asia (ex Japan) PE 2.52 7.21 9.1 5.72 CEE & Russia PE -16.87 7.24 24.09 15.61 Latin America & Caribbean PE 5.35 14.6 19.06 1.71 MSCI Emerging Markets 19.44 8.27 17.68 11.71 US VC -12.44 1.33 4.85 8.41 US PE -8.94 2.29 11.1 8.26 Western Europe PE -18.46 3.44 18.8 16.86 S&P 500 -6.91 -5.43 1.02 -0.15

Source: Cambridge Associates LLC Proprietary Index: pooled end-to-end returns, net of fees, expenses and carried interest.

Quarterly Review Vol VI Issue 1, Q1 2010 17 Member News Submit your news to [email protected] (Details on page 10)

Asia Franklin Templeton Private Equity Strategy, a private equity portfolio managed by Franklin Templeton Asset Management (India), Actis, an emerging markets-focused private equity firm, is acquiring has invested approximately US$13 million in India’s GKC Projects. It is a significant minority stake in Integreon, an India-based provider of advised by Darby Asia Investors (India), the Indian affiliate of Darby Over- legal support, research and business services to law firms, financial seas Investments, which is the private equity arm of Franklin Templeton. institutions and corporations. Actis has invested alongside Ayala Cor- poration, the holding company of a Philippines-based conglomerate. Zephyr Peacock Management India has invested US$4.5 million The deal is valued at approximately US$50 million. for a 20% stake in Indian telecom services firm Metro Telworks. This is Zephyr Peacock Fund II’s fifth investment. Baring Private Equity Asia, Sequoia Capital, Fidelity Investment Holdings and Deutsche Bank have invested approximately US$54.8 CEE/CIS million in Hyderabad-based engineering company Coastal Projects, doubling their combined stake to 32%. The firms had acquired a 16% CRG Capital, in partnership with the International Finance Cor- stake in the company for approximately US$39.5 million in 2008. poration (IFC) and the European Bank for Reconstruction and Development (EBRD), has launched a fund dedicated to investing BTS Investment Advisors, an independent investment advisor in distressed assets in Central and Eastern Europe. The CEE Special based in India and Switzerland, is launching a fund which will invest Situations Fund aims to raise €200 million in total commitments. Sep- in Indian clean energy companies. BTS is targeting US$150 million in arately, CRG sold its 42% stake in Polish beverage producer Wosana total commitments for the fund. to the firm’s majority owner, Pawel Lyson, for an undisclosed sum.

The Carlyle Group is set to launch a yuan-denominated private The European Bank for Reconstruction and Development equity fund in partnership with Fosun International, China’s larg- (EBRD) is committing €25 million to the Southeast Europe Energy est privately-held conglomerate. Carlyle and Fosun are committing Efficiency Fund (SE4F). The fund manager, Oppenheim Asset a combined US$100 million to the new fund and plan to raise capi- Management Services, is targeting total commitments of €400 tal from Chinese investors for subsequent yuan-denominated funds. million and will invest in energy efficiency and renewable energy projects in Albania, Bosnia-Herzegovina, Croatia, Macedonia, Darby Overseas Investments, the private equity arm of U.S.-based Montenegro, Serbia and Turkey. Franklin Templeton Investments, has provided a US$33.5 million senior secured convertible loan to PECH Holdings, the holding vehi- Poteza Partners, a Slovenian private equity firm, is selling its 57.2% cle of Prestolite Electric Beijing, a provider in China of medium- and stake in lender Postbank BH of Bosnia and Herzegovina to Turkish postal heavy-duty alternators and starter motors. The investment was made operator Turkish Post. The value of the transaction was not disclosed. through the US$254 million Darby Asia Mezzanine Fund II. Turkey-focused asset management platform RHEA Investments, India’s Everstone Capital, is set to begin fundraising for its second through its Vakif Venture Capital Investment Trust, is acquiring a 33% fund. Indivision India Partners II is targeting US$550 million in total stake in Turkey’s first fully-integrated solid waste and energy com- commitments. pany, Envitec, for US$7 million. Separately, RHEA has acquired a majority stake in SETA Medical Products, a maker of disposable med- U.S.-based Global Environment Fund (GEF) and India’s Yes Bank ical products, valuing the company at US$4.6 million. are raising a fund that will invest in cleantech technologies, focus- ing on South Asian countries, particularly India. The fund is targeting Russia-based UFG Private Equity, in collaboration with Shari Red- commitments totaling US$200 million. stone, is acquiring Russian theater chain Rising Star Media from National Amusements, which is owned by Shari Redstone’s father, U.S. billion- IL&FS Investment Managers has acquired a 28% stake in Emerald aire Sumner Redstone. The value of the transaction was not disclosed. Lands, part of Delhi-based realty developer Silverglades Group, which is developing a luxury residential project in the district of Ludhiana. Latin America The deal is valued at approximately US$14.6 million. Emerging markets-focused private equity firmActis has sold its 30% India Equity Partners has invested approximately US$38 mil- stake in El Salvador-based Regal Forest Holding to Operadora Liver- lion in IL&FS Education and Technology Services, the education unit pool, a subsidiary of Mexican department store operator El Puerto de of Indian infrastructure development and finance company IL&FS Liverpool. The value of the transaction was not disclosed. Group. The Carlyle Group has made its first private equity investment Nine Rivers Capital has invested approximately US$6 million in in Brazil, acquiring a 64% stake in CVC Brasil, one of the largest Kolkata-based infrastructure service provider GPT Infraprojects and tour operators in Latin America. Financial terms have not been US$7 million in New Delhi-based agribusiness consulting group disclosed, but reports suggest the investment was upwards of Global AgriSystem. US$250 million.

18 Emerging Markets Private Equity Association Member News

EMP Latin America, a joint venture between EMP Global and SHUAA Partners has concluded a land acquisition in Jeddah, senior members of its Latin American team, has announced US$17 Saudi Arabia, which will be developed into a luxury hotel tower. million in financing, structured as a long-term mezzanine loan, The transaction was made through the SHUAA Saudi Hospitality for Promocion e Industrializacion de Palma and its subsidiary Pro- Fund I, which is targeting US$533 million in total commitments. palma, one of the largest vertically-integrated palm oil producers in Mexico. The deal was made through the US$150 million Central Swicorp, a Saudi Arabia-based financial advisory, private equity American Mezzanine Infrastructure Fund. and principal investment firm, has partnered with Algeria’s Banque Exterieure d’Algerie (BEA) and Portugal’s Banco Espirito Global investment firm Eton Park Capital Management has Santo (BES) to jointly establish a new leasing company based in invested US$200 million in Chilean company HydroChile. Founded Algeria. Ijar Leasing Algerie will have an initial share capital of in early 2007, HydroChile’s objective is developing and operating US$47.6 million. small hydroelectric power projects.

Brazil-based asset manager Gavea Investimentos is set to launch Sub-Saharan Africa fundraising for its fourth fund once its third fund, which closed at US$1.2 billion in commitments in 2008, is fully subscribed. Gavea’s The African Development Corporation (ADC), an investment fourth fund will aim to match or exceed the commitments raised team of the Africa-focused private equity firm the Altira Group, for its predecessor. has acquired a 54% stake in Zimbabwean banking company Pre- mier Finance Group. The deal is valued at approximately US$6 Och-Ziff Capital Management Group, Enfoca Inversiones million. and Argentina-based Magna Capital have acquired a control- ling stake in Maestro Home Center, a Peruvian home improvement Aureos Capital has held the final close of its Aureos Africa Fund store. The value of the transaction was not disclosed. with US$381.1 million in total commitments. Separately, Aureos Capital’s Africa Health Fund has made its first investment, acquir- Rio Bravo Investimentos has invested approximately US$13.8 ing a stake in the Nairobi Women’s Hospital for US$2.7 million. million in Brazilian processed food manufacturer Multdia. The The Africa Health fund has a target size of US$100 million and investment was made through Rio Bravo’s US$70 million Rio Bravo is backed by the IFC, DEG, the African Development Bank and Nordeste II fund. the Bill & Melinda Gates Foundation, who have jointly committed The Stratus Group, a Brazilian private equity and financial US$57 million. advisory firm, is acquiring a 40% stake in Amyris Brasil, a manufacturer of renewable fuels and chemical materials controlled by U.K.-based CDC Group is committing US$10 million to ShoreCap U.S.-based Amyris Biotechnologies. The deal is valued at approx- II, a private equity fund managed by ShoreCap Management that imately US$54 million. will invest in small business banks and microfinance institutions in emerging African and Asian markets. The fund is targeting com- MENA mitments totaling US$100 million.

Abraaj Capital and the Palestine Investment Fund have Pan-African private equity firm Kingdom Zephyr Africa Man- jointly launched a fund focused on investing in small and medium agement has completed the final closing of its second fund with enterprises in the Palestinian territories. The fund has achieved a total commitments of US$492 million. The Pan African Invest- first close of US$15 million and seeks to raise total commitments ment Partners II Fund has already completed three investments: of US$50 million. approximately US$20 million in both South Africa-based power infrastructure and heavy building materials company Buildworks Citadel Capital has acquired a 49% stake in South Africa-based Group and Thunnus Overseas Group, a producer and distributor Sheltam Railways Company, the largest single shareholder in Rift of canned tuna, as well as approximately US$48 million in real Valley Railways (RVR). RVR won a 25-year concession in 2006 to estate developer Mixta Africa. operate a railway line linking the Kenyan port of Mombassa to the Kenyan and Ugandan interiors. Citadel Capital has separately Proparco, the private sector financing arm of the French Devel- announced plans to set up an East Africa regional office in Nai- opment Agency (AFD), Kenya’s I&M Bank and Mauritius-based robi in 2010. Kibo Fund have jointly acquired a majority stake in CF Union Bank QInvest, Qatar’s largest investment bank, is acquiring a 25% of Tanzania. The value of the transaction has not been disclosed. stake in India-based investment firm Ambit Group. The transac- Separately, Proparco has committed a total of €27 million to three tion marks QInvest’s first investment in India. QInvest plans to funds dedicated to Sub-Saharan Africa: the Africinvest Financial become an anchor investor in a hedge fund and Shariah-compli- Sector Fund, the African Development Partners Fund and the ant fund to be raised by Ambit. Fanisi Venture Capital Fund.

Quarterly Review Vol VI Issue 1, Q1 2010 19 Notable EM PE Exits & IPOs

Portfolio Year of Date Country PE Firm(s) Sector Capital Invested Exit and Return Details Company Name Investment of Exit

Bosnia and Postbank BH Poteza Partners Banking 2007 Feb-10 Strategic Sale of 57.2% stake to Turkish Post Herzegovina

Shopping Auction sale of 6.8% stake on the BM&F Brazil BR Malls GP Investments 2006 US$63m Jan-10 malls Bovespa for an est. US$167m

Casa do Pao de Secondary sale of 70% stake for approx. Brazil Patria Investimentos Restaurant 1999 Dec-09 Queijo US$41m to Standard Bank Private Equity

Share sale of more than half of Advent's Brazil Parana Banco Advent International Banking 2007 Dec-09 equity stake

Central Regal Forest Consumer Strategic sale of 30% stake to Operadora Actis 2000 Mar-10 America Holding goods Liverpool

Beijing Hiconics Legend Captial, China Electronics 2008 Est. US$5m Jan-10 IPO on ChiNext GEM/Shenzhen SE Technology Legend Holdings

China Nuokang China Sequoia Capital Biotech 2007 US$17m Dec-09 IPO on NASDAQ, est. proceeds US$45m Bio-Pharmaceutical

China Pacific China The Carlyle Group Insurance 2005, 2007 Est. US$800m Dec-09 IPO on HKSE, raising US$3.1B Insurance (Group)

IPO on HKSE, with est. proceeds of China PCD Stores 3i Group Consumer 2005 US$31m Dec-09 US$377m

South East Asia Venture Shengli Oil & Gas IPO on HKSE, est. proceeds US$204m; China Investment (SEAVI) Industrials 2008 Dec-09 Pipe Holdings SEAVI partially exited, returning US$7.5m Advent, Apollo Asia

iD TechVentures Inc., Solar China Singyes Solar Asset & Ashe, Vincera Jan-10 IPO on HKSE, est. proceeds US$3.6m power Capital

Partial exit through an IPO on NSE, Warburg Pincus India D.B. Corp Ltd Media 2006 Jan-10 generating est. US$24m; reported 1.7x International return

2007 (ChrysCap); Est. US$4m (Rs Hathway Cable and Morgan Stanley, IPO on NSE; partial exits for Morgan Stanley India Cable TV 2008 162m); Est. US$5m Feb-10 Datacom Limited ChrysCapital and ChrysCapital (Morgan (Rs 213m) Stanley)

IL&FS Investment Est. US$3.6m (Rs Share sale on BSE for an est. US$7m; India JBF Industries Textiles 2005 Jan-10 Managers Ltd. 160m) 23.6% IRR, 2.1x multiple

Sabre Abraaj Capital; 2008 (Sabre Est. US$18m (Rs Man IPO on the NSE and BSE, with proceeds India Standard Chartered Constr. Abraaj); 830m); Est. US$11m Mar-10 Infraconstruction totalling an est. US$30m Private Equity 2009 (SCPE) (Rs 600m)

Est. US$18m 2006, Jan-10, Share sale of 2.7% stake on NSE for est. India Pipavav Shipyard 2i Capital Infrast. (Rs 840m), Est. 2007 Feb-10 US$20m; reported 120% net return US$3.6m (Rs 160m)

Time Technoplast Zephyr Peacock India Indust. & Share sale of half of firm's 3.35% stake on India 2007 US$8.5m Dec-09 Limited (TTL) Fund Man ufact. BSE for est. US$3.4m; reported 1.65x return

Paper & Strategic sale to Japan's Oji Paper for an Malaysia Paperbox Holdings CVC Partners 2007 US$212m Mar-10 packaging undisclosed amount

SunRay Renewable Solar Malta Denham Capital Feb-10 Strategic sale to SunPower for US$277m Energy power

Lafise Investment US$650,000 LIM exited investment following full Nicaragua CECONSA Housing 2007 Feb-10 Management (mezzanine loan) repayment of loan

Kuntur gas pipeline Conduit Capital Energy US$1.4B (100% Strategic sale of 51% stake to construction Peru 2008 Mar-10 project Partners infrast. stake) co. Odebrecht for US$1.5B Secondary sale of 34.3% stake to TFI Poland Nokaut.pl bmp Media Investors E-comm. 2006 Feb-10 Investors for approx. US$1.8m Food & Poland Wosana CRG Capital 2007 Dec-09 Sale of 41.8% stake to majority owner beverage Centrul Medial 3i Group, 3TS Capital Secondary sale of 48.7% stake to Advent Romania Healthcare 2007 Feb-10 Unirea Partners International

Submit news on exits to [email protected] (Details on page 10)

20 Emerging Markets Private Equity Association Members List (as of March 31, 2010)

Premier Members * EMPEA’s founding Charter Members.

Abraaj Capital Limited* DEG* IL&FS Investment Managers*

Abu Dhabi Investment Authority Delta Private Equity Partners* International Finance Corporation*

Actis* Denham Capital Management Japan Bank for International Cooperation (JBIC) Advent International* Development Bank of Southern Africa Kohlberg Kravis Roberts & Co. Akin Gump Strauss Hauer & Feld* Dubai International Capital Norton Rose* Alfa Capital Partners EFG-Hermes Private Equity* O’Melveny & Myers Asian Development Bank * Emerging Capital Partners* Orrick, Herrington & Sutcliffe Baring Private Equity Asia* EMP Global* PineBridge Investments* Baring Vostok Capital Partners* Ethos Private Equity* Quilvest* BTG Pactual Eton Park Capital Management* Shearman & Sterling Capital International Private Equity European Investment Bank* Funds (CIPEF) * SHUAA Partners* Export Development Canada* Capital MS&L SIFEM* FMO—Netherlands Development The Carlyle Group* Finance Company* SigmaBleyzer*

Cartica Capital Global Capital Management* Siguler Guff & Company*

CDC Group* Global Environment Fund * SJ Berwin*

China New Enterprise Investment GP Investments* Standard Bank Private Equity

Citadel Capital HarbourVest Partners SVG Advisers*

Clearwater Capital Partners* Hony Capital Swicorp*

Clifford Chance* ICICI Venture Funds Warburg Pincus International* Management Company* Conduit Capital Partners* White & Case* IDFC Private Equity* Debevoise & Plimpton* Zephyr Management* IFC Asset Management Company

Quarterly Review Vol VI Issue 1, Q1 2010 21 Members List (as of March 31, 2010)

Full Members *Full members include private equity fund managers.

7L Capital Advisors Confrapar Participações Horizon Equity Partners QInvest e Pesquisas AB Capital Hupomone Capital Quadriga Capital Russia Cordiant Capital Partners Singapore AB Invest RHEA Investments CoreCo Holding I&P Management (Indian Ocean) Absa Capital Private Equity Rio Bravo Investimentos CRG Capital Icentis Capital Access America Investments The Rohatyn Group Cruzar Funds IDFC Project Equity Co. (TRG) Management ACCION Gateway Family of Funds CSI Capital IDG Ventures India SeaBright Capital Management Advanced Finance and DAC Management India Equity Partners Shoreline Capital Management Investment Group Darby Overseas Investments International Housing Solutions SkyBridge Global Partners African Capital Alliance Development Partners Investec Asset Management Small Enterprise Assistance AIF Capital International Funds Ithmaar Bank Albright Capital Management Discovery Americas SOAR Management JS Private Equity Capital Partners Alothon Group Société Générale Kaizen Venture Partners DLJ South American Partners Asset Management Alta Growth Capital Kingdom Zephyr Africa Alternative Investments Dragon Capital Altira Management Southern Bridge Capital Duet Group ARM Capital Partners L2i—Financial Solutions Stratus Group East Africa Capital Partners Artesia Capital Management Leopard Capital Susquehanna Capital Eastgate Capital Group Asia Mezzanine Capital Advisers Lereko Metier Capital Teka Capital Emerging Energy & Environment Growth Fund Asian Tiger Capital Partners Templeton Asset Management Environmental Investment Lighthouse Funds Assetswise Capital Partners TMG Capital Lombard Investments Aureos Capital Eurasia Capital Management Trans-Century Limited Madagascar Development Avigo Capital Partners Everstone Capital Partners Travant Capital Partners Axxess Capital Evolvence India Life Science Fund Marlow Capital Trivella Investimentos Baird Asia Advisors EVU Management Marshall Capital Partners Tuninvest Finance Group Baninfo Capital Fairview Capital Partners Marshall Fund UFG Private Equity Beltone Private Equity Fidelity Capital Partners Mekong Capital Venture Capital Trust Fund Blackthorn Capital Partners Finansa Fund Management National Venture Capital Venture Investment Blue River Capital Partners Bangladesh Finlombarda Gestioni SGR Navis Capital Partners Brait Private Equity Venture Partners Botswana FIR Capital Partners NEVEQ Capital Partners BTS Investment Advisors Verny Investments Foursan Group Nexxus Capital Capital Invest Vietnam Investments Group Frontier Investment & Nine Rivers Capital Management Capital Trust Development Partners Vision Brazil NSG Capital Administração Capitalworks Equity Partners Gávea Investimentos de Recursos WambiaCapital Centras Capital GIMV Och-Ziff Capital Wamex Private Equity Management Group Management CICapital Private Equity Great Circle Capital Paladin Realty Partners Wolfensohn Capital Partners CIMB Standard Strategic GrowthGate Capital Corporation Asset Advisors Pan African Capital Group Zephyr Peacock HBG Holdings Management India Citi Venture Capital International Pinto America Growth Fund Henderson Equity Partners CoInvest Argentina Portland Private Equity Horizon Capital Poteza Partners

22 Emerging Markets Private Equity Association Members List (as of March 31, 2010)

Associate Members *Associate members include limited partners, fund of funds, service providers and other organizations.

Adams Street Partners Georgetown University Public Investment Corporation Investment Office Alberta Investment Religare Private Equity Management Corporation Global Strategies Group Rensselaer Polytechnic Institute Alpha Associates Goldman Sachs Robeco Private Equity AlpInvest Partners Greenpark Capital SAVCA Amanda Capital The Gutmann Group SikSal ANBIMA—Associação Brasileira das Entidades Hamilton Lane Squadron Capital dos Mercados Financeiro e de Capitais Howard Hughes Medical Institute Squire, Sanders & Dempsey Ashurst Hunton & Williams SVB Capital Asia Alternatives Advisor IDFC Capital (Singapore) Teacher Retirement System of Texas AxeaGroup & Co. IDI Emerging Markets TechnoServe Axonia Partners Japan International Thunderbird Private Equity Center Azerbaijan Investment Company Cooperation Agency TozziniFreire Advogados Barnellan Equity Advisors Jefferies Fund Placement Group Tufts University Investment Office BIO—Belgian Investment Company for K2 Investimentos Developing Countries Udo Udoma & Belo-Osagie KfW IPEX—Bank Boston BioCapital, FZ UMWA Health & Retirement Funds KPMG C.P. Eaton Partners University of Pennsylvania Kusuntu Partners Caisse de dépôt et placement Value Enhancement International Liberty Global Partners du Québec Venture Capital Trust Fund Magog & Cie CalSTRS World Bank Pension Plan Middleland Capital Cambridge Associates XT Capital Partners Milbridge Capital Management Campbell Lutyens & Co. MontaRosa Canada Pension Plan Investment Board Morgan Stanley Alternative Citizen Entrepreneurial Investment Partners Development Agency MVision Private Equity Advisers Coller Capital National Council for Social Security Fund P.R.C. Commonfund Capital Natixis Private Equity Corporación Mexicana de Inversiones de International Management Capital (FONDO DE FONDOS) New Market Venture Management Corporate Connect NORFUND Denning and Company Northgate Capital EMAlternatives OMERS Private Equity Emerisk Overseas Private Euromed-Capital Forum Investment Corporation European Bank for Reconstruction Paul Capital Partners and Development Paul Pannkuk Associates Fairview Capital Partners PCGI FINEP PE Consulting Investintoindia Private Finnish Fund for Industrial Cooperation Proparco First Avenue Partners

Quarterly Review Vol VI Issue 1, Q1 2010 23 Save the Date! 12th annual12th Returning to Growth: Private Equity in Emerging Markets May 11–12, 2010 The Ritz-Carlton • Washington, DC Half-Day Latin America & Caribbean Seminar on May 12

For more information, visit globalpeconference.com or contact Holly Freedman at [email protected] or call +1 202-333-8171

24 Emerging Markets Private Equity Association