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Africa shines as wider emerging market fundraising fails to match 2018 highs

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Fundraising and dealmaking in the emerging markets fell back in the first half of the year following an unprecedented year of high activity in 2018, new research shows.

Fund managers raised $31.9bn and invested $26.3bn across all emerging market geographies and asset classes according to EMPEA’s Mid-Year 2019 Industry Statistics report.

Those figures – which include private equity and venture capital, private credit, and private infrastructure and real assets – represent declines of 10 per cent and 32 per cent respectively year over year.

EMPEA said the fundraising decline was “expected” given the sheer amount of capital raised in 2018, particularly in emerging Asia and Latin America.

Overall, managers raised $27.2bn for emerging Asia private capital across all strategies in H1 2019, compared to $78.2bn in all of 2018.

With many of the region’s largest managers on the fundraising trail last year, Latin America also experienced a significant decline in the first half of 2019, with managers raising just $1bn.

Africa-focused fundraising appears to be on an upward trend, however, following two slow years.

That was led by the $425m final close of Amethis’ second pan-Africa fund, helping drive fundraising in the continent to $1.6bn in H1 2019, a 59 per cent increase from H1 2018.

EMPEA said the uptick illustrated that firms with local expertise have maintained traction even as some global players leave the region.

That increased capital raised has not yet fed through into increased investment activity, however, with disclosed investment continuing a decline that began in 2016, totaling just $378m in H1 2019.

VC continues to defy this trend according to the report, with fund managers finding increasing opportunities in the continent’s technology space.

GPs executed 24 VC deals in the first half of this year, on track to surpass all years since EMPEA’s records began in 2008.

EMPEA said the overall slowdown in private capital investment activity in the first half of 2019 was more pronounced amid rising trade tensions between major economies and a more uncertain global economic outlook.

Disclosed capital invested in China, which typically absorbs a substantial share of capital invested in emerging markets, fell from $15.1bn in 1H 2018 to $9.8bn in the same period this year, with deal count across all transaction types in the country declining from 582 to 322 over the same period.

Nonetheless, the $26.3bn deployed so far in 2019 puts emerging markets overall on track for the third highest annual total since EMPEA began tracking investment in 2008.

Moreover, capital invested in several geographies, including India, the Middle East, and Latin America, actually increased year over year.

Jeff Schlapinski, EMPEA’s senior director of research, said, “A correction in private capital activity in China was, perhaps, inevitable after a record-breaking 2018.

“There are plenty of factors to give investors pause, including trade frictions, bad debts in the financial system, and difficulties for some of the largest private technology companies.

“However, the private capital landscape in China has been robust over the last several years, and investors can adjust to the new conditions from a position of relative strength.

“In addition, what we are seeing in other markets—increased deal activity in Brazil and India, a rebound in fundraising for Africa-focused vehicles—points to continued confidence in EM opportunities on the part of investors.”

Following a two-year spike in India private capital fundraising, India-focused funds raised only $2.1bn in H1 2019.

Venture capital fundraising activity saw the greatest drop, with only $264m raised for the strategy.

LPs ranked Southeast Asia as the most attractive EM region in EMPEA’s 2019 Global Limited Partners Survey, and fundraising for Southeast Asia has rebounded from its recent low point in 2016, with $1.4bn raised in H1 2019.

Venture capital has emerged as the most active strategy in the region according to EMPEA, with nine VC or venture debt funds achieved a close in the first half of 2019, led by the $175m first close of Jungle Ventures’ fourth fund.

After a relatively robust 2018, private capital fundraising and investment activity in Central and Eastern Europe slowed in 1H 2019, with managers raising just $271m.

Lower-middle market private equity and venture capital deals continued to be the most popular destination for investors in CEE, with nearly all disclosed deals under $25m in size.

In Latin America, strong fundraising in 2018 was followed by just $1.1bn in the first half of 2019, led by Vinci Partners’ third mid-market fund.

This downyear appears to be in line with historical fundraising cycles for the region, EMPEA said, with previous peaks in capital raising in 2011 and 2014, compounded by the absence of large funds currently in the market and the precipitous drop in Mexico-focused fundraising.

In contrast, GPs put more than $4.4bn to work in H1 2019, the highest first half total on record and on pace to reach record-high annual investment totals for the region.

Brazil accounted for the majority of this total, attracting more than $3.1bn as investor sentiment toward the market continues to improve.

Copyright © 2019 AltAssets

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