India, China Capture Lion's Share of Total Emerging Market PE Investment

Data from the Emerging Market Private Equity Association (EMPEA) shows India and China have taken 68% of total emerging market private equity investment.

(August 25, 2011) — Private equity investment in emerging markets is returning to pre-crisis levels, according to research by the Emerging Markets Private Equity Association (EMPEA).

In total, India and China — the two Asian giants — attracted 68% of private equity capital invested in emerging markets in the first six months of 2011, with $5.8 billion going into China and $3.8 billion into India.

“Western institutions are continuing to seek greater exposure to the world’s fastest-growing markets, and institutions in the emerging markets themselves are significantly ramping up their investment in the asset class,” said Sarah Alexander, President and CEO of EMPEA, in a statement.

In terms of fundraising, EMPEA’s study revealed that fundraising activity in the first six months of 2011 reached almost full year 2010 levels, estimating that fundraising for the full year could reach $40 billion or more, which would exceed the 2006 total.

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EMPEA, which manages a global proprietary database of private equity activity across the emerging markets, asserted that emerging markets’ gains in fundraising through June 2011 were fueled by continued increases in interest from developed markets as well as greater participation from investors in the emerging markets themselves.

The study showed that in the first half of 2011, 89 funds raised $22.6 billion, compared to $23.5 billion for the entirety of 2010. Funds completed 431 deals with a combined value of $14.1 billion over the same period. This compares with 434 deals totaling $12.8 billion in 2010. EMPEA noted that the recovery has been fueled by changing asset allocations of Western institutional investors — who are increasingly receptive to alternatives and emerging markets — along with greater participation by emerging market institutions.

Alexander added: “Institutions such as pension funds realize they have to increase their exposure to alternative investments to yield the returns needed to meet their escalating liabilities over the next 5-10 years. Given the drubbing to their equities and fixed-income portfolios this summer, we anticipate even greater interest from institutional investors in private equity in emerging markets.”

In July, a previous research report by EMPEA showed that greater interest in Latin America among private equity and venture capital funds is fueling investment potential in the region.

According to the statistics released by the firm, 2010 saw private equity activity in the emerging markets rebound from a slower 2009. The study showed that pension funds in Latin America have had a longer history of private equity investment than many emerging markets, with Brazil, for example, leading the charge on corporate pension fund participation in private equity. The report concluded that Latin America has become one of the most favored regions for private equity investment and fundraising. Investment in the region surged from $1.3 billion in 2009 to $6.6 billion in 2010. “Developments in Latin America could potentially be a harbinger of things to come in other markets, such as Asia and Africa, which we will examine through future EMPEA research initiatives,” it said.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(August 24, 2011) — Kent County Council has encountered criticism from campaign groups for investing £24 million of its pension fund portfolio in tobacco companies.

The scheme invests about £13.5 million in the Altria Group; £3.5 million in Imperial Tobacco; and £3.4 million in Japan Tobacco. Its total tobacco investment equals about 1% of its equity investments.

Critics have asserted that the council should avoid such companies. FairPensions, for example, a UK-based advocacy group that recently published a report on investors’ legal duties, has questioned the argument that pension funds have an obligation to maximize profit at any cost. “Kent County Council’s position reflects a common misinterpretation of investors’ legal duties. It is all too easy to dismiss ethical concerns by invoking a presumed duty to maximise profit. In fact, this duty is often over-played: pension funds are legally bound to defend their members’ interests but this does not equate to a duty to pursue profit at any cost,” said Christine Berry, the author of the report.

Additionally, the advocacy group emphasized the need for funds to avoid knee-jerk responses to concerns over the impact of their investments. “There is often an assumption that excluding any investments will be bad for returns. In fact, many funds have successfully implemented exclusions on the basis that this had no significant impact on returns. We would hope that Kent County Council’s response is based on an informed analysis of the potential financial impact of responding to the concerns raised,” added Berry.

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The roughly £3.2 billion Kent Superannuation Fund has more than 20,000 pensioners and 26,000 active members including KCC staff, teachers and other local government workers.

Kent County Council is not alone in encountering criticism for supporting investment in tobacco. In July, doctors began pushing local government pension funds to leave their investments in tobacco companies, naming the investment as an “unethical” practice and a “destructive industry.”

“If it were my pension contributions being invested in an industry whose only product line killed people in the numbers that die from tobacco, I would be absolutely horrified,” NHS regional director of public health for the South-West Dr Gabriel Scally told The Observer newspaper. “As a doctor I think it would be completely unethical to have any part in it.”

According to the Guardian, Cornwall council has the highest amount invested, with £24.5 million in Imperial Tobacco, Altria Group and British American Tobacco. Devon County council has £20.8 million, while Gloucestershire holds £16.8 million and Dorset has £14.7 million.

About £1 billion in such investments are present in councils across England.

In January, Norway blocked 17 tobacco companies from its sovereign wealth fund, Europe’s biggest equity investor. The fund blacklisted Philip Morris, British American Tobacco, Imperial Tobacco, Altria, Reynolds American and Japan Tobacco, among other tobacco companies, after the Norwegian finance ministry ruled that the firms violated the fund’s ethical guidelines.

While not all funds agree with this, tobacco divestment is part of a larger push by institutional investors and those who advise them to realign portfolios along more ethical – and some say efficient — lines.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742