Emerging Markets Private Equity The 2005 Landscape

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					Developments in Emerging Markets
Private Equity: The 2005 Landscape

                   Sarah Alexander
       Emerging Markets Private Equity Association

   Presentation to the 5th African Venture Capital Conference
                        Mombasa, Kenya
                      November 6-9, 2005

Table of Contents

     I.       EMPEA Overview

     II.      Historical Landscape

     III. Current Climate

     IV. Expected Future Trends

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I. 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

   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.

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EMPEA Membership
First-year membership totals 83 firms operating throughout emerging market countries.
Charter Members
Abraaj Capital Limited                 Debevoise & Plimpton LLP                         ICICI Venture Funds Management Co. Ltd
Actis                                  DEG                                              International Finance Corporation
AIG Capital Partners, Inc.             Delta Private Equity Partners                    Luxembourg Government
Asian Development Bank                 EFG-Hermes Private Equity                        Norton Rose
Avenue Capital Group                   Emerging Markets Partnership                     SHUAA Partners
Barbosa, Müssnich & Aragão             Ethos Private Equity Ltd                         SigmaBleyzer
Baring Private Equity Asia Limited     European Investment Bank                         Siguler Guff & Company LLC
Baring Vostok Capital Partners         Evolvence Capital                                SVG Advisers Limited
CDC Group plc                          FMO- Netherlands Development Company             Swiss State Secretariat for Economic Affairs
ChrysCapital                           Global Environment Fund                          The Carlyle Group
Clearwater Capital Partners            GP Investimentos                                 Warburg Pincus International LLC
Clifford Chance                        Hamilton Lane                                    Zephyr Management, LP

 Members                                                                                           LP Members
 Acap Partners                   Global Horizon Fund                 TMG Capital Partners Ltd
 African Capital Alliance        GVFL Limited                                                      Adams Street Partners Ltd.
                                                                     Tuninvest Finance Group
 Alfa Capital Partners           IDFC Asset Management Co.                                         Bear Stearns Asset Management
                                                                     Votorantim Novos Negocios     Coller Capital
 Aureos Advisers Limited         Jahangir Siddiqui Group
                                                                     Walden International          OPIC
 BPE Investimentos               Lombard Investments
 Brait South Africa Limited      Madagascar Development Partners     Western NIS Enterprise Fund   Paul Capital Partners
 Capital International           Mekong Capital, Ltd                 Westmount Pacific LLC         PCG International
 Capital Z Investment Partners   Navis Capital Partners Limited      Associate Members             Samba Financial Group
 Caribbean Basin Investors       Poteza Partners
 CVC International               Rio Bravo Investments Ltd           Barnellan Equity Advice Ltd
 Conduit Capital Partners LLC    Romanian-American Enterprise Fund   Campbell Lutyens & Co
 Cordiant                        Small Enterprise Assistance Funds   Liberty Global Partners
 Euroventures Ukraine Fund       Stratus Corporation                 O’Melveny & Myers LLP
                                 Thousand Hill Ventures              Smyth Trade Credit LLC
 FIR CAPITAL Partners Ltda.

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Board of Directors
Teresa Barger                                  Roger Leeds - Chairman
International Finance Corporation              Johns Hopkins University/SAIS

Thomas Barry                                   H. Jeffrey Leonard
Zephyr Management, L.P.                        Global Environment Fund

Michael Barth                                  Donald Roth
Former CEO, FMO (Netherlands)                  Emerging Markets Partnership

Antonio Bonchristiano                          Andre Roux
GP Investimentos, Brazil                       Ethos Private Equity Ltd.

Woodrow Campbell                               George Siguler
Debevoise & Plimpton, LLP                      Siguler Guff & Company, LLC

Ashish Dhawan                                  Pote Videt
ChrysCapital                                   Private Equity (Thailand) Co., a subsidiary of Lombard

Paul Fletcher                                  Andrew Williams
Actis                                          SVG Advisors Limited

Mark Jennings
Chairman, Africa Venture Capital Association

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International Advisory Board
 David Baylis                                             Thomas ‘Mack’ McLarty
 Norton Rose                                              Kissinger McLarty Associates / The Carlyle Group

 Christopher K.B. Brotchie                                Steven Quamme
 Senior Advisor, Baring Vostok, Asia, & India Funds       Milestone Merchant Partners

 Michael Calvey                                           David Rubenstein
 Baring Vostok Capital Partners                           The Carlyle Group

 Patricia Cloherty                                        Everett Santos
 Delta Private Equity Partners                            Founder, Latin American Venture Capital Association

 Yasser El Mallawany                                      James Seymour
 EFG-Hermes Private Equity                                Commonfund Capital

 Cynthia Hostetler                                        Robert Stillman
 Overseas Private Investment Corporation (OPIC)           Milbridge Capital Management, LLC

 Richard Laing                                            Lip Bu Tan
 CDC Group Plc                                            Walden International

 Josh Lerner                                              Paul Tierney
 Harvard Business School                                  Chairman, Technoserve, Inc.

 Dennis Lockhart
 Board Chairman, Small Enterprise Assistance Fund

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    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

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EMPEA’s Programs
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:
     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

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II. 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

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Historically, 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

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III. Current Climate
  Renewed Investor Interest

  An EMPEA Survey                   Same
   conducted in March                30%
   2004, indicated that 45%                                                      45%
   of LPs surveyed planned
   to increase commitments
   to emerging markets

  “Do you expect your           Don’t Know
   commitments to                  10%
   emerging markets private                              Lower
   equity funds to be higher,                             15%
   lower or the same in 5        March 2004. Survey conducted for EMPEA by Liberty Global Partners.

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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
        Increasing competition in the US/Europe, narrowing return
        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

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   Compelling Macroeconomic Trends
                 GDP (2003 US$ billions)                                                           GNP (PPP in US$ trillions)
100000                                                                         60
90000                                                                                                                                             China
                                         BRICs                                 50
                                         the G6                                40
50000                                                                BRICs     30                                                              US
40000                                                                G6
     0                                                                         0
          2000 2010 2020 2030 2040 2050                                             2004      2010       2020       2030       2040       2050
  Source: Goldman Sachs, Dreaming with BRICS: The Path to 2050, Global              Source: Jeffrey D. Sachs, Columbia University, January 2004
  Economics Paper No. 99, 2003. (Dominic Wilson, Roopa Purushothaman)

  BRICs:        Brazil, Russia, India, China
  G6:           France, Germany, Italy, Japan, UK,

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Strengthening of Corporate Governance
            Asian Country                    Date of Main                 Independent                   Audit Committees
                                               Codes                  directors required?                  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

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Improved Exit Prospects
                Divestments from EM Private Equity (US$bn)
                                                                                             Jan-Sept. 2005

                                                                                           Africa and Middle
                                                                                            East: $500m v. $2.5 b
    10                                   0.72
                                                 0.4                                       Latin America: $720
                                                            Middle East & Africa            mm v. $660m 2004
                                                            Latin America
                                                            CE Europe and Russia
                                                                                           CEE: $500 mm v. est
      6                   0.3                                                               $400 mm 2004
                                         9.25                                              Asia: $9.25 b v. 5.8 b
                   5.8                                                                      in 2004.

                  2004                 YTD 2005

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

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Improving Returns
                           Comparative End-to-End Returns by Region 1

                                             As of December 31, 2004

                                                                          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                 3.6
         1Cambridge   Associates LLC Proprietary Index: pooled end to end returns, net of fees, expenses and carried interest

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Leading to Increase in Fundraising

 Emerging Markets Private Equity Fundraising Snapshot, September 2005

             US$ Billion

                            4                                                  2005 ytd
                                Asia (ex  CE     Latin     Middle   Total
                                Japan) Europe & America    East &
                                         Russia            Africa

       Source: EMPEA, Liberty Global Partners

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Increase in Fundraising
Emerging Markets Private Equity Fundraising Snapshot, September 2005

                                                                                             Est. Total
                                                         Funds Raised
                                     Funds Raised 2004                    Estimated # of     Currently
                                                         2005 thru Aug
                                         (US$ mm)                        Funds in Market   Solicited (US$
                                                           (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

                                              NA               370              9              2,074
    Funds of Funds
    Source: EMPEA, Liberty Global Partners Estimates

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IV. 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.

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Expected 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,
           Demonstrated track records
           Reliable regulatory and legal frameworks

November 7, 2005                20               EMPEA Presentation to AVCA
                           Thank You!

                        Sarah Alexander
                        Executive Director
             Emerging Markets Private Equity Association

                                P.O Box 33606
                           Washington, D.C. 20033
                              +1 (202) 587-3242
                   EMPEA is a nonprofit 501(c)(6) organization

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