Carlyle's Rubenstein champions emerging markets

“Emerging markets not as much in favor as a few years ago,” he told the International Finance Corporation’s (IFC) global private equity conference in Washington DC. “That’s the time to invest. That’s why I am putting a lot of my money into emerging markets.”

Rubenstein noted that it has become harder to raise emerging markets-focused funds, but he believes this fall in popularity is temporary. On one hand, these geographies have strong growth prospects, lower prices and less competition than developed economies. On the other, concerns about commodity price volatility, corruption, suspect accounting, and securing financing have receded.

EMPEA’s most recent global limited partners survey found that more than half of LPs plan to increase the US dollar value of their commitments to emerging markets private equity funds over the next two years. A similar proportion want to increase the percentage allocation to emerging markets within their overall PE portfolios.

Family offices appear to be the most bullish, with 64% expressing a desire to ramp up exposure to emerging markets PE in US dollar terms. Endowments and foundations are the only institutional category in which more respondents plan on decreasing rather than increasing allocations.

Rubenstein, who is making commitments to emerging markets through his own family office – “I felt naked walking into parties saying I don’t have a family office,” he observed – agrees that these groups will become an increasingly important source of capital.

He noted that until the US government started letting public pension funds invest in private equity in the late 1970s, family offices were the prime movers. While sovereign wealth funds and global pension funds have become the largest allocators in recent years, they don’t have the same level of flexibility and risk appetite as family offices. “People who have earned money generally think they can earn it again,” Rubenstein said.

The influx of capital into the asset class from investors of all kinds is likely to continue if returns expectations are met – and even these have moderated. Rubenstein noted that private equity outperforms public markets by 300-600 basis points on average, while managers showed in the wake of the global financial crisis that they could turn companies around.

“Private equity is likely to do reasonably well, although maybe not as good as in the past,” Rubenstein said. “But investors have lowered their return expectations – 15-16% is very attractive if you can get it.”

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• Topics
• GPs
• Performance
• Investments
• Asia
• The Carlyle Group
• David M. Rubenstein
• IFC
• Emerging Markets Private Equity Association (EMPEA)