- Sarah Alexander

Sarah AlexanderEmerging Markets Private Equity Association

Presentation to the 5th African Venture Capital ConferenceMombasa, Kenya

November 6-9, 2005

www.empea.net

Developments in Emerging Markets Developments in Emerging Markets Private Equity: The 2005 LandscapePrivate Equity: The 2005 Landscape

EMPEA Presentation to AVCA2November 7, 2005

Table of ContentsTable of Contents

I. EMPEA Overview

II. Historical Landscape

III. Current Climate

IV. Expected Future Trends


I. EMPEA OverviewI. EMPEA Overview

What is EMPEA?

A broad-based membership organization founded in 2004 that serves private equity and venture capital firms, fund investors and service providers in the emerging markets of Africa, Asia, Eastern Europe, Latin America and the Middle East

EMPEA’s Mission

To strengthen the performance of private equity investing in emerging markets by helping private equity firms, limited partners and other stakeholders address industry challenges

EMPEA’s Programs

Programs bring together industry players to address common problems and highlight industry opportunities, collaborating with national and regional venture capital associations.


EMPEA MembershipEMPEA Membership

Charter Members

Abraaj Capital LimitedActisAIG Capital Partners, Inc.Asian Development BankAvenue Capital Group Barbosa, Müssnich & AragãoBaring Private Equity Asia LimitedBaring Vostok Capital PartnersCDC Group plcChrysCapitalClearwater Capital PartnersClifford Chance

Members Acap PartnersAfrican Capital AllianceAlfa Capital PartnersAureos Advisers LimitedBPE InvestimentosBrait South Africa Limited Capital International Capital Z Investment PartnersCaribbean Basin InvestorsCVC International Conduit Capital Partners LLCCordiantEuroventures Ukraine FundFIR CAPITAL Partners Ltda.

Debevoise & Plimpton LLP DEGDelta Private Equity PartnersEFG-Hermes Private EquityEmerging Markets PartnershipEthos Private Equity LtdEuropean Investment BankEvolvence CapitalFMO- Netherlands Development CompanyGlobal Environment Fund GP InvestimentosHamilton Lane

ICICI Venture Funds Management Co. Ltd International Finance Corporation Luxembourg GovernmentNorton Rose SHUAA PartnersSigmaBleyzerSiguler Guff & Company LLCSVG Advisers LimitedSwiss State Secretariat for Economic AffairsThe Carlyle GroupWarburg Pincus International LLCZephyr Management, LP

LP Members

Adams Street Partners Ltd.Bear Stearns Asset ManagementColler CapitalOPICPaul Capital PartnersPCG InternationalSamba Financial GroupAssociate Members

Barnellan Equity Advice LtdCampbell Lutyens & CoLiberty Global PartnersO’Melveny & Myers LLPSmyth Trade Credit LLCTechnoserve

Global Horizon FundGVFL LimitedIDFC Asset Management Co. Jahangir Siddiqui GroupLombard InvestmentsMadagascar Development PartnersMekong Capital, LtdNavis Capital Partners LimitedPoteza PartnersRio Bravo Investments LtdRomanian-American Enterprise FundSmall Enterprise Assistance FundsStratus CorporationThousand Hill Ventures

TMG Capital Partners LtdTuninvest Finance GroupVotorantim Novos NegociosWalden InternationalWestern NIS Enterprise Fund Westmount Pacific LLC

First-year membership totals 83 firms operating throughout emerging market countries.


Board of DirectorsBoard of DirectorsTeresa Barger International Finance Corporation

Thomas Barry Zephyr Management, L.P.

Michael BarthFormer CEO, FMO (Netherlands)

Antonio BonchristianoGP Investimentos, Brazil

Woodrow CampbellDebevoise & Plimpton, LLP

Ashish Dhawan ChrysCapital

Paul FletcherActis

Mark JenningsChairman, Africa Venture Capital Association

Roger Leeds - ChairmanJohns Hopkins University/SAIS

H. Jeffrey LeonardGlobal Environment Fund

Donald RothEmerging Markets Partnership

Andre RouxEthos Private Equity Ltd.

George SigulerSiguler Guff & Company, LLC

Pote VidetPrivate Equity (Thailand) Co., a subsidiary of Lombard

Andrew WilliamsSVG Advisors Limited


International Advisory BoardInternational Advisory BoardDavid BaylisNorton Rose

Christopher K.B. BrotchieSenior Advisor, Baring Vostok, Asia, & India Funds

Michael CalveyBaring Vostok Capital Partners

Patricia Cloherty Delta Private Equity Partners

Yasser El MallawanyEFG-Hermes Private Equity

Cynthia HostetlerOverseas Private Investment Corporation (OPIC)

Richard LaingCDC Group Plc

Josh LernerHarvard Business School

Dennis LockhartBoard Chairman, Small Enterprise Assistance Fund

Thomas ‘Mack’ McLartyKissinger McLarty Associates / The Carlyle Group

Steven QuammeMilestone Merchant Partners

David RubensteinThe Carlyle Group

Everett Santos Founder, Latin American Venture Capital Association

James SeymourCommonfund Capital

Robert StillmanMilbridge Capital Management, LLC

Lip Bu TanWalden International

Paul TierneyChairman, Technoserve, Inc.


Why EMPEA?Why EMPEA?

Effective collaboration and regular interaction among industry players can strengthen performance and increase investment flows.

EMPEA surveys confirm critical need to enhance credibility of the asset class and improve the PE information flow to fund managers, prospective investors, local VC associations, governments and others

Demystify markets for prospective new investors Provide data and analysis on industry trends Showcase countries Disseminate success stories Analyze key issues Educate government regulators

Industry participants seek more effective networking opportunities with fund managers, potential LPs, service providers and the DFIs

Meet prospective investors Share best practices Learn about industry trends and issues


EMPEA’s ProgramsEMPEA’s Programs

Analyze, compile and disseminate relevant information and data about PE in emerging markets Quarterly newsletter on trends, success stories, best practices, member news,

benchmarking data Website - the leading global resource for on-line information on the asset class. Evaluation of industry standards

Conduct applied research Best practices Surveys of LP Attitudes toward emerging markets PE Database of funds active in EM, exits, fundraising

Facilitate networking among fund managers, investors and others by organizing conferences and seminars on key topics of interest Every May in Washington, D.C., in conjunction with IFC December 13-14, 2005 in London

Current and planned programs are shaped and prioritized based on input from members, as well as collaboration with national and regional VC and PE associations. Current programs include:


II. The Historical LandscapeII. The Historical Landscape

Emerging Markets Private Equity is a relatively immature industry

10 years, $100 billion, Asia-centric Not monolithic – regional and country variation

1990s Vintage Funds

Modeled on U.S. Strong assumption of exits through IPOs Minority stakes and/or investments in family owned businesses Often first time, inexperienced fund managers Weak corporate governance at fund level

The result – disappointing performance

Exogenous shocks closed off IPO markets Minority positions difficult to sell

Most LPs were disenchanted and retreated


Historically, Comparatively Poor ReturnsHistorically, Comparatively Poor Returns

Comparative End-to-End Returns by Region 1

As of December 31, 2004

5 Year (%) 10 Year (%)

Emerging Markets PE (0.1) 1.2

Asian PE 0.8 2

Latin America PE (9.6) (6.6)

Eastern Europe/Russia PE 7.1 4.8

MSCI EAFE 1.9 5.4

MSCI EM 4.6 3.3

S&P 500 (2.3) 12.1

Western Europe PE 17.9 19.2

Western Europe VC (10.2) 8.3

US Private Equity 5 12.3

US Venture Capital (6.6) 42.4

1Cambridge Associates LLC Proprietary Index: pooled end to end returns, net of fees, expenses and carried interest


III. Current ClimateIII. Current Climate

An EMPEA Survey conducted in March 2004, indicated that 45% of LPs surveyed planned to increase commitments to emerging markets

“Do you expect your commitments to emerging markets private equity funds to be higher, lower or the same in 5 years?”

Don’t Know10%

Same30%

Lower15%

Higher45%

March 2004. Survey conducted for EMPEA by Liberty Global Partners.

Renewed Investor InterestRenewed Investor Interest


What has Changed? What has Changed? Compelling macro-economic trends in China, India Globalization of the PE industry

Portfolio companies need access to emerging markets Leading US/Europe funds allocating to these markets from existing

funds Increasing competition in the US/Europe, narrowing return

expectations Seasoned domestic fund managers; track records can be analyzed Fund managers more hands-on Improved regulatory/legal frameworks in some markets

Stronger minority shareholder rights Greater acceptance of importance of corporate governance Investments made with a more realistic eye toward exits

Trade sales Exit environment and returns are improving


BRICs: Brazil, Russia, India, ChinaG6: France, Germany, Italy, Japan, UK,

USA

India

China

US

0

10

20

30

40

50

60

2004 2010 2020 2030 2040 2050

Source: Jeffrey D. Sachs, Columbia University, January 2004

GNP (PPP in US$ trillions)

Compelling Macroeconomic Trends Compelling Macroeconomic Trends

Source: Goldman Sachs, Dreaming with BRICS: The Path to 2050, Global Economics Paper No. 99, 2003. (Dominic Wilson, Roopa Purushothaman)

GDP (2003 US$ billions)

BRICsovertake

the G6

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

2000 2010 2020 2030 2040 2050

BRICs

G6


Strengthening of Corporate GovernanceStrengthening of Corporate GovernanceAsian Country Date of Main

CodesIndependent

directors required?Audit Committees

required?

China 2002 Yes Yes

Hong Kong 1993/2004 Yes Yes

India 1999 Yes Yes

Indonesia 2001 Yes Yes

Japan 2004 Optional Optional

Korea 1999 Yes Yes (large firms)

Malaysia 2001 Yes Yes

Philippines 2002 Yes Yes

Singapore 2001/2005 Yes Yes

Taiwan 2002 IPOs only Encouraged

Thailand 1999 Yes Yes

Source: “Corporate Governance in Asia: Overview & Trends”. Asian Corporate Governance Association, ACGA, Ltd 2005

•Asia - since 1999, 11 countries have issued regulations requiring independent directors, 8 countries have required

audit committees•Latin America – Brazil introduced the Novo Mercado, with more rigorous listing requirements and minority shareholder protection


Improved Exit ProspectsImproved Exit Prospects

Jan-Sept. 2005

Africa and Middle East: $500m v. $2.5 b

Latin America: $720 mm v. $660m 2004

CEE: $500 mm v. est $400 mm 2004

Asia: $9.25 b v. 5.8 b in 2004.

Source: EMPEA, Liberty Global, Asia Private Equity Reviews, VELA, LAVCA, EVCA estimates

Divestments from EM Private Equity (US$bn)

5.8

9.25

0.3

0.4

0.66

0.72

2.5

0.5

0

2

4

6

8

10

12

14

2004 YTD 2005

Middle East & Africa

Latin America

CE Europe and Russia

Asia


Improving ReturnsImproving Returns

1Qtr (%) 1 Year (%) 3 Year (%)

Emerging Markets VC & PE 10.4 17.1 5.2

Asian PE 11.1 15.5 6.5

Latin America PE 9.0 9.0 (6.0)

CEE/Russia PE 5.2 26.8 11.9

US Venture Capital Index 6.7 15.4 (6.2)

US Private Equity Index 14.3 23.5 12.3

W. Europe PE Index 18.4 31.2 27.0

MSCI EM 17.3 26.0 22.8

S&P 500 9.2 10.9 3.61Cambridge Associates LLC Proprietary Index: pooled end to end returns, net of fees, expenses and carried interest

Comparative End-to-End Returns by Region 1

As of December 31, 2004


Leading to Increase in FundraisingLeading to Increase in Fundraising

0

2

4

6

8

10

12

14

Asia (exJapan)

CEEurope &

Russia

LatinAmerica

MiddleEast &Africa

Total

2003

2004

2005 ytd

US$ B

illion

Source: EMPEA, Liberty Global Partners

Emerging Markets Private Equity Fundraising Snapshot, September 2005


Emerging Markets Private Equity Fundraising Snapshot, September 2005

Source: EMPEA, Liberty Global Partners Estimates

Increase in Fundraising Increase in Fundraising

Funds Raised 2004 (US$ mm)

Funds Raised 2005 thru Aug

(US$ mm)

Estimated # of Funds in Market

Est. Total Currently

Solicited (US$ mm)

Asia (ex Japan/Aust) 2,799 8,921 79 18,532

China (699) (1,809) (30) (5,155)

India (1,100) (1,708) (15) (2,157)

Pan/other Asia (1,000) (6,035) (34) (11,220)

CEE/Russia 629 1,556 10 1,569

Latin America 1,020 1,121 10 1,381

Africa/Middle East 545 520 7 1,490

EM Total 4,993 12,118 106 22,972

Funds of FundsNA 370 9 2,074


IV. Expected Future TrendsIV. Expected Future Trends

Expect a larger annual percentage to flow to China and India Through 2004, India and China accounted for an estimated 22%

of PE investments in emerging markets (1)

Beyond the BRICs Non-BRIC investments have in some instances outperformed

over the last 10-15 years, though this may not be indicative of recent performance in these markets

Gross returns (1) through 2004 from all investments in:

Russia – 14% India – 17% China – 3% South Africa – 11% Korea – 16% Czech Republic – 28.5%

1 Source: Cambridge Associates, Proprietary Database. Includes EM investments made by EM and non-EM funds in CA Database.


Expected Future TrendsExpected Future Trends

Emergence of Secondaries and Fund of Funds for EM

Greater demand from LPs for: Strong corporate governance Best practices in fund management (reporting,

valuation) Demonstrated track records Reliable regulatory and legal frameworks


Thank You!

Sarah AlexanderExecutive Director

Emerging Markets Private Equity Association

P.O Box 33606Washington, D.C. 20033

+1 (202) [email protected]

www.empea.netEMPEA is a nonprofit 501(c)(6) organization

- Sarah Alexander

Economy & Finance

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