Pundits who predicted a fundraising famine for private equity emerging markets managers have had to eat their words somewhat this morning following news of the $2.9 billion close of Actis’ third global emerging markets fund.
The fund, which began marketing in September last year, demonstrates that many LPs remain keen on investing in emerging markets private equity with well-established managers. But perhaps even more important is the fund’s structure, which could serve as a model going forward to attract LPs whose appetites change in accordance with shifting economic conditions.
Actis describes its fund as global, but the $2.9 billion figure is actually made up of five individual components. It includes a global pool as well as regional side-pockets for India, Africa, China and Latin America. Once LPs committed to the global pool, they could then earmark capital for specific regional exposure as well.
The structure was a first for Actis and proved very popular with LPs, said Jonathon Bond, head of the firm’s fundraising activities. Though he wouldn’t disclose figures, Bond said the global pool accounted for the “lion’s share” of the capital raised.
Bond characterised LP interest during the first part of 2008 as a “broad, thematic interest in emerging markets”. But as the year progressed, and “as we went into financial meltdown, what we noticed was private equity allocation teams were wanting to rebalance private equity portfolios”. In some cases that meant gaining more exposure to emerging markets in general, or to specific regions like Africa perceived as “less correlated” to global financial turmoil.
The changing rationale wasn’t necessarily that such markets will be immune from world financial woes, Bond explained. Instead, some of the themes Actis invests behind – low-ticket consumer goods and infrastructure, for example – are seen as recession-resistant and hence attractive in the current environment. During the course of fundraising, as some LPs moved from straightforward diversification to more “defensive” investing amid the turmoil, the Actis side-pocket most in favour changed from India to Africa.
The firm thus could accommodate LPs wanting to increase regional exposures as they saw fit, yet still remain committed to a global emerging markets strategy – all with just one cheque.
It is a clever move other private equity fund managers are sure to note, as they too look to cater to the changing needs of their LPs.