EMs present rich opportunities for PE

Added 4th September 2015

Despite the continued sell-off in emerging markets, current growth concerns should not be extrapolated to be the beginning of a long-drawn financial crisis or a growth collapse in Asia, Richard A Piliero, head of private equity, Southeast Asia, Franklin Templeton Asset Management said.

EMs present rich opportunities for PE

Speaking at Fund Selector Asia’s Alternatives Forum in Singapore, Piliero noted that most Asian countries have room to expand fiscal policy and the region as a whole has sound financial backstops in place.

“Growth is coming from the middle-class consumer. People are making more money and spending a lot more,” Piliero said. He estimated that by 2030, Asia’s middle class would account for 59% of the global middle-class market. This translates into $55.7 trillion of total global spending by 2030, up two and a half times what it was in 2009.

Piliero added that most of the growth in emerging markets would be in form of rural dwellers moving into urban regions. He used China as an example. “By 2030, China will have built 50,000 new skyscrapers – the equivalent of up to ten New York cities. [There will be] a lot of opportunities in form of privatisation of assets,” he said. In his presentation, he pointed out that Tianjin, Chengdu, Chongqing, Wuhan, Guangzhou and Shenzhen are slated to rise as megacities.

He said that emerging markets have now become an inevitable destination for private equity activities. He noted that despite a tougher market environment, countries such as China and India remain much less penetrated, with investments representing only 0.1% of the two country’s GDP. In contrast, the US private equity market accounts for 1.25% of the country’s GDP. With their private equity markets relatively undeveloped, emerging economies present attractive entry opportunities.

Piliero disclosed that Franklin Templeton works with entrepreneurs by taking the role of a minority investor. He said that this strategy allows the firm to have as many options as possible.

 “Franklin Templeton adds value by being on the [invested] company’s board. [Under usual circumstances], we look at a three to five-year exit term,” Piliero said.

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