Private equity funds dedicated to Africa were up 37% in 2008 compared to 2007, and the number of private equity funds with closes rose from 16 in 2007 to 21 in 2008.

Hannah Armstrong

Fundraising for private equity funds focusing on emerging markets reached a record high of $6.45bn in 2008, up 12% from 2007, according to a new study released by the Washington D.C. based Emerging Markets Private Equity Association (EMPEA).

EMPEA’s survey showed that 52% of institutional investors believe that their emerging markets private equity fund portfolio will be less negatively affected by the financial crisis than their developed market counterparts. As investments in developed economies prove disappointing, private equity investment in emerging markets is seen as profitable and full of potential. Sarah Alexander, President of EMPEA, predicts that some funds will enjoy unexpected advantages in 2009. “We’re entering a period of potentially very ripe conditions for private equity in these markets: lower entry prices, less competition for deals and very attractive deal flow from entrepreneurs with few alternative options for raising capital,” she said.

IFC officials also express confidence in the viability of private equity in emerging market regions like the African continent. Economic growth was robust both in North Africa and sub-Saharan Africa between 2004 and 2008, thanks to a global commodities boom and macroeconomic stability. On average, GDP in African countries grew between 6% and 7% over the past three years, offering seductive opportunities for investors.

As the global financial crisis deepens, fundraising is falling for new private equity projects in emerging markets. International investors are withdrawing from the market and risk aversion is on the rise. The IFC expects fundraising for new private equity projects in emerging markets to freeze for at least the first half of 2009, before stabilizing and climbing once more. Investing in emerging markets on the African continent, for the most part sheltered from the fallout of the global financial crisis, will likely remain a competitive option for shaken investors.