Capital’s $3bn fund shows new appetite

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Capital International has raised a new $3bn private equity fund targeted at emerging markets, in a sign of the improving market for fundraising and renewed investor appetite for alternatives to traditional leveraged buyouts.

There were 248 funds closed last year aiming to invest in emerging markets, according to research group Preqin, with $69bn in committed capital. The total is up from the $40bn raised by 210 funds in 2009, but still lags behind the $117bn raised in 2008.

However, dealmaking last year was almost as active as 2007 when there were 375 transactions worth $43bn. In 2011, there were the same number of deals worth $40bn outside the main developed markets, according to Preqin.

The sixth fund raised by Capital International’s private equity operation, CIPEF, is dedicated to taking minority stakes in emerging companies, the same approach it has taken since 1992. “In emerging markets you want control, and you want local knowledge, but it’s worked for them to be influential from a minority position,” said one pension fund investor who has invested in the last three funds.

CIPEF has already committed a fifth of its capital, including stakes in Eaton Towers, an African mobile phone antenna company, and an Indian equipment financing business affiliated with Larsen & Toubro, an engineering conglomerate.

CIPEF is now looking at out-of-favour markets such as Mexico and Russia, but Lam Nguyen-Phuong, co-founder and senior managing partner, said “we have no ‘must do’ countries or sectors”.

It is the largest fund dedicated to global emerging markets closed in the past five years, according to the Emerging Markets Private Equity Association. However, there are not clear definitions in private equity, where an Asian fund might invest in both developing China, and more mature South Korea and Japan, for instance.

According to Preqin, the largest global emerging market fund to date was the $5bn sharia Fund of Funds raised by BMB Capital in 2006. Mount Kellet also raised a $4bn special situation fund last year.

The group said that it had set out to raise $2.5bn, and had reached its hard close limit of $3bn. The previous fund, raised in 2007, attracted $2.25bn. One fund of fund investor in the vehicle said that he wanted to allocate to emerging markets without taking a fixed view on any one region or country. “If you give money to a Brazil fund then guess where it’s going, in good times or bad.”

CIPEF is part of the Capital Group, a collection of asset management companies owned by past and present management. Best known for the American Funds, its US mutual fund products which manage more than $900bn, the group has a further $100bn in Capital International and its institutional affiliates.

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