Latin America top choice for emerging private equity-survey

Thu Apr 12, 2012 9:00pm EDT

* Latin America, excl. Brazil, tops list of EM PE destinations

* Less penetrated markets like Turkey, sub-Saharan Africa become more popular

* India, Central and Eastern Europe slip in rankings

* PE investors could look to Greece for opportunities

By Clare Kane

LONDON, April 13 (Reuters) - Latin America, excluding Brazil, has overtaken that country to become the number one destination for emerging market private equity investors over the next year, as they prefer Mexico, Colombia and Peru, according to a survey released on Friday.

Latin America jumped from fourth to first place in the Emerging Markets Private Equity Association (EMPEA) 2012 survey of 106 private equity investors in 28 countries, with Brazil, China and southeast Asia trailing as favoured places.

"People will point to the attractive macroeconomic fundamentals in (Latin America), sizable populations but also an emerging middle class and rising spending levels among large portions of those populations," said Jennifer Choi, vice president of industry and external affairs at EMPEA.

"The reality is with several billion dollar-plus funds raised for Brazil in 2011, investors are rightfully thinking about what sorts of valuations that might create with the number of funds, and what impact that might have on returns."

More than half of those surveyed planned to expand or start investment in Latin America beyond Brazil over the next twelve months and 65 percent expect returns of over 16 percent from 2011 investments in the region.

Investors expected more solid returns only in China and Southeast Asia, where three-quarters and 71 percent of investors respectively expected returns of over 16 percent.

The survey underlined a general shift towards emerging markets from developed markets by private equity investors and especially towards less penetrated markets like Latin America, Turkey and sub-Saharan Africa.

Two-thirds of investors said they dedicated at least 11 percent of their current private equity portfolios to emerging markets.

"The speed at which emerging markets is taking a greater share of private equity capital far outstrips the speed at which emerging markets economies are taking a share of the global economy," Choi said in a phone interview with Reuters.

Sub-Saharan Africa proved more attractive in this year's survey, moving up to fifth place from seventh in 2011, though 40 percent of investors said the scale-to-opportunity to invest was too small and 38 percent complained about tax and regulation.

Nigeria and Kenya, with sizeable populations and middle classes, are appealing from a private equity point of view because of opportunities in consumer-related companies, while Ghana has an attractive investment climate.

Russia moved up to eighth place from 10th last year, but topped the political risk tables, with 73 percent of investors concerned about the situation in the former communist country, where Vladimir Putin recently won presidential elections.

India fell for the third consecutive year, moving down one place to sixth. 20 percent of investors said competition was a problem in the country, which ranked third in their preferred markets in 2010.

EMPEA's Choi said India's developed capital markets translated into fewer private equity and venture capital opportunities, as entrepreneurs are able to access money through IPOs.

Central and Eastern Europe fell to the bottom of this year's rankings, sliding from eighth to tenth place. The region's close proximity to the euro zone means it is less insulated from its neighbours' problems than other emerging markets.

Greece is not usually considered an emerging market but there is some "sentiment in the market" for it to be considered as one, Choi said, and the indebted euro zone country could offer some private equity investment opportunities.

"The assumption there would be that there will be some distressed assets that would be right for private equity. The question there would be is that true and which vehicles are best positioned to tap those opportunities."