CRISIL GR&A - Opportunities with EM Private Equity

OPPORTUNITIES WITH
Suprabha Dikshatha
Global Head of Financial Research
CRISIL GLOBAL RESEARCH & ANALYTICS
EM PRIVATE EQUITY
June 2014

Opportunities with EM Private Equity
EM Private Equity — Trends and Takeaways
2
 EM PE under stress on the back of high dry powder, low deal activity and
less than impressive returns
 LPs stay committed to emerging markets – share in portfolio expected to
escalate from 10% to 15% in 2 years
 Asset Allocation rather than fund manager selection will turn key as
returns of top and bottom quartile performers converge
2013 Snapshot
GPs Managing
the Challenge
The Silver
Lining
Trend to Watch
for LPs
 GPs sourcing opportunities in newer regions and sectors and are finding
newer ways of money making by leveraging local market knowledge

Top Trends in EM Private Equity
Fundraising
EM funds to face tough times on the back of DM resurgence and
high dry power
3
“Our very survival depends on our ability to stay awake, to adjust to new
ideas, to remain vigilant and to face the challenge of change.”
- Martin Luther King Jr.

Fundraising Turns Tougher for EM Funds
4
Renewed competition from DM dampens interest for EM funds
Global fundraising by region across years
Source: EMPEA, Bloomberg Finance LP, Preqin
11%
21%
18%
21%
12%
14%
0%
5%
10%
15%
20%
25%
0
50
100
150
200
250
300
350
2009 2010 2011 2012 2013 2014 Q1
USDbn
United States Global ex-US DM Emerging Markets EM as % of Global Total (RHS)
+42%
-19%

High Dry Powder Levels are a Limiting Factor
5
Dry Powder for EM at over 5 times the current level of investments
Dry powder as a proportion of yearly investments across regions
Source: EMPEA, Bloomberg Finance LP, Preqin
100
120
140
160
180
200
220
240
0x
2x
4x
6x
8x
10x
12x
14x
2009 2010 2011 2012 2013
USDbn
Asamultipleofdealvalue
Dry powder: Asia and RoW (RHS) North America Europe Asia and RoW

Growth and Venture Funds Defy Tough Environment
6
Strongly expanding EM middle-class fuels interest
Number of EM PE fund issues* by fund type Number of DM PE fund issues* by fund type
* By vintage year of funds; 2014 until end of Apr-2014
Source: Bloomberg Finance LP, Preqin
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Buyout Coinvestment Debt
Fund Of Funds Growth Real Assets
Real Estate Secondary Venture
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Buyout Coinvestment Debt
Fund Of Funds Growth Real Assets
Real Estate Secondary Venture

Newer Regions Like MENA Receiving Greater
Attention
7
Investors in search of regions with strong beta potential
Number of EM PE fund issues* by region focus Value of EM PE fund issues* by region (2014 YTD)
* By vintage year of funds; 2014 until end of Apr-2014
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Any Asia Pacific Emerging
Eastern Europe Latin America and Caribbean
Middle East and Africa Combo
Asia Pacific
Emerging
36%
Eastern
Europe
18%
Latin
America
4%
Middle East
and Africa
42%
Asia Pacific Emerging Eastern Europe
Latin America Middle East and Africa

Mid-sized Funds are getting Squeezed-out
8
Trend well in-line with observations across the globe
Number of EM fund issues* by fund size (USD)
Proportion of fund issues* in EM and DM with
fundraising size between $250mn – $1bn
* Excludes Venture funds; By vintage year of funds; 2014 until end of Apr-2014
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
<100mn 100-250mn 250-500mn
500mn-1bn >1bn
10%
15%
20%
25%
30%
35%
40%
2009 2010 2011 2012 2013 2014
EM DM

Deal Making
2013 revival in EM being less robust than in DM casts shadow on
future deals
9
“It is often in the darkest skies that we see the brightest stars.”
- Richard Evans

Total Value of Deals Over 50% Below Recent Peaks
10
Add-on finds greater interest in DM than in EM
Number of EM buyout deals* by deal type Number of DM buyout deals* by deal type
* Excludes deals with value <$10mn; 2014 until end of Apr-2014
0
10
20
30
40
50
60
70
0
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 2013 2014
YTD
# of deals Value (USD bn, RHS)
0
50
100
150
200
250
300
350
400
450
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2009 2010 2011 2012 2013 2014
YTD
# of deals Value (USD bn, RHS)

Growth and PIPE Deals Rule EM
11
Deal count and value on receding mode over the past two years
EM deal count and deal value* DM deal count and deal value*
* By investment year; excludes deals with value <$10mn; 2014 until end of Apr-2014
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Add-on Control Buyout Distressed Debt
Growth Capital Merger PIPE
Public To Private Recapitalisation Others
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Add-on Control Buyout Distressed Debt
Growth Capital Merger PIPE
Public To Private Recapitalisation Others

Non-BRIC Regions Turning More Attractive
12
China and India collectively account for 40% of total deals
Breakdown of number of EM deals* by country Breakdown of total value of EM deals* by country
Source: Bloomberg Finance LP, EMPEA, Preqin
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
China India Brazil
Russia Israel South Korea
Poland South Africa Others
0% 20% 40% 60% 80% 100%
2009
2010
2011
2012
2013
2014
YTD
China India Brazil
Russia Israel South Korea
Poland South Africa Others

Consumption than Investment Growth to Drive Deals
13
Tech, Telecom and Consumer account for over 55% of deals
Breakdown of number of EM deals* by sector Breakdown of number of DM deals* by sector
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Basic Materials Consumer Discretionary
Consumer Staples Energy
Financials Health Care
Industrials Technology
Telecommunication Utilities
Others
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
Basic Materials Consumer Discretionary
Consumer Staples Energy
Financials Health Care
Industrials Technology
Telecommunication Utilities
Others

Deal Multiples Have Risen in Recent Times
14
EM multiples however remain lower than DM, in line with public equities
EBITDA multiple of EM and DM deals* over time P/E multiple of EM and US public equity markets
* By investment year; Multiple weighted by EBITDA; excludes deals with value <$10mn; 2014 until end of Apr-2014
Source: Bloomberg Finance LP, S&P Capital IQ
5x
10x
15x
20x
25x
30x
35x
Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
MSCI EM
S&P 500 Index
MSCI EAFE
0x
2x
4x
6x
8x
10x
12x
2009 2010 2011 2012 2013 2014 YTD
EM Private Equity
US Private Equity
Global ex-US DM Private Equity

Exits
Environment for exits stays poor in contrast to a sedate revival
in DM
15
“Punctuality is not just limited to arriving at a place at right time, it is also
about taking actions at right time.”
- Amit Kalantri

Holding Period of Investments on The Rise
16
Over 60% of portfolio companies in EM funds now over 3 years’ old
Average holding period (in years) of EM deals*
Proportion of PE fund portfolio constituents with
average age over 3 years in EM and DM
* By exit year; 2014 until end of Apr-2014
0
1
2
3
4
5
6
2009 2010 2011 2012 2013 2014 YTD
Average Median
0%
10%
20%
30%
40%
50%
60%
70%
2009 2010 2011 2012 2013 2014 YTD
EM DM

Sale to GP Growing in EM in Line with
17
Poor IPOs and pressure to exit providing additional impetus
Breakdown of number of EM exits* by exit type Breakdown of number of DM exits* by exit type
* By exit year; 2014 until end of Apr-2014
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
IPO Merger
Private Placement Recapitalisation
Restructuring Sale to GP
Sale to Management Trade Sale
Unspecified Exit
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014 YTD
IPO Merger
Private Placement Recapitalisation
Restructuring Sale to GP
Sale to Management Trade Sale
Unspecified Exit

Performance
Long-term poor performance continues. EM PE may be better than
EM equities
18
“Don't tell me about your effort. Show me your results.”
- Tim Fargo

19
Returns consistently weaker than DM PE
* Performance by vintage year; Performance as at end of April 2014
# Performance as at end of Q3 2013
Source: Cambridge Associates
EM PE Net IRRs* have lagged its DM peers
especially the US
…as also reflected in recent underperformance#
vs. DM PE
-10
0
10
20
30
40
50
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
NetIRR(%)
CA Global ex-US DM PE Index
CA US PE Index
CA Global EM PE & VC index
0%
4%
8%
12%
16%
20%
1-Year 3-Year 5-Year 10 Year 15 Year
CA Global EM PE & VC index
CA US PE Index
CA Global ex-US DM PE Index
EM PE Returns on A Structural Decline

20
* Based on analysis since 1990
Source: Cambridge Associates, Bloomberg Finance LP
In the short-to-medium term, EM PE has
out-performed EM equities# in absolute terms…
…and manages nearly as many positive quarters* as
peers
From a risk perspective, EM PE scores* over EM
equities comprehensively in terms of max drawdown…
…and carries lower co-efficient of variation* vs equities
On a risk-adjusted basis, on an attractive footing vs. EM equities
0%
5%
10%
15%
CA Global EM PE & VC index MSCI Emerging Markets Index
0%
15%
30%
45%
60%
75%
90%
EM PE US PE Global ex-
US DM
PE
MSCI EM S&P 500 MSCI
EAFE
MSCI
World
-60%
-50%
-40%
-30%
-20%
-10%
0%
US DM
PE
EAFE
MSCI
World
0
1
2
3
4
5
6
US DM PE
EAFE
MSCI
World
EM PE Still Scores Over EM Equities

EM PE Fares Favorably Across Asset
Classes
21
Provides consistent positive returns across time frames
Source: Bloomberg Finance LP, Cambridge Associates
Annualized performance# of EM and DM PE versus other competing asset classes
-10%
-5%
0%
5%
10%
15%
20%
25%
Emerging Markets PE US PE MSCI EM MSCI World
Russell 3000 JPM EM Bond Index BofA ML Government Bond Index BofA ML Corp. IG Bond Index
S&P GSCI Commodity Index HFRI Hedge fund Index S&P Global Property Index
EM PE Fares Favorably Across Asset Classes

22
Trend is more evident across deals than among funds
* Based on analysis since 1990; excludes Venture funds; Performance as at end of April 2014
# Based on complete exits since 2004
Net IRR* of EM- and DM-focused PE funds by fund
size (in %)
Net IRR# of EM deals by deal size (in quintiles)
based on complete exits (in %)
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
<100mn 100-250mn 250-500mn 500mn-1bn >1bn
Median EM Median DM
0%
10%
20%
30%
40%
50%
60%
Bottom
quintile
2 3 4 Top quintile
Smaller-sized Funds, Deals Offer Better Returns

23
Late-stage funds best bet among venture funds
* Based on analysis since 1990
# Based on complete exits since 2004
Median Net IRR# of deals by buyout activity Median Net IRR* of venture funds by strategy
0%
10%
20%
30%
40%
50%
60%
Control Buyout Growth Capital PIPE Recapitalisation
Median IRR Risk adjusted returns
0%
1%
2%
3%
4%
5%
6%
7%
Early Stage Late Stage Multi Stage
Median-EM Median-DM
PIPE Deals Score on A Risk-adjusted Basis

EM Private Equity: Key Takeaways
24
“Our lives are defined by opportunities, even the ones we miss.”
- Eric Roth
Key Takeaways for GPs
Need to find niche opportunities in fundraising, deal making and
return generation

25
Most LPs looking to increase commitments
* Excludes development finance institutions and EM-focused fund-of-funds
Source: EMPEA
Anticipated level of new commitments to EM PE
funds over the next 2 years*
Proportion of LPs with PE return expectation >16%
across developed and emerging markets
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014
Higher About the same Lower
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014
Developed Markets Emerging Markets
LPs Remain Firmly Committed to EM PE

26
Lat-Am (ex-Brazil), SE Asia and Sub-Saharan Africa are the favorites
* Turkey was not included in the 2009 and 2010 survey, while South-East Asia was not part of the 2009 survey
Source: EMPEA
Attractiveness rank of Emerging Markets for GP Investment over the next 2 years – LP Views
Region 2009 2010 2011 2012 2013 2014
Latin America (ex. Brazil) 5 5 4 1 3 1
Southeast Asia* NA 4 2 4 2 2
Sub-Saharan Africa 6 8 7 5 1 3
China 1 1 2 3 4 4
Brazil 2 2 1 2 6 5
Middle East and North Africa 8 9 9 9 10 6
Central and Eastern Europe 4 6 8 10 7 7
India 3 3 5 6 9 8
Russia/CIS 9 10 10 8 8 9
Turkey* NA NA 6 7 5 10
LPs Chasing Growth Avenues in New Regions

27
MENA, SE Asia and Sub-Saharan Africa appear attractive
* Size of the bubble is proportional to GDP 2013 of the respective country in US$ terms
Source: IMF, Bloomberg Finance LP, EMPEA
Scatter bubble* of expected 5Y GDP CAGR against PE penetration levels across key regions
Israel
US
UK
0.50% 0.70% 0.90% 1.10% 1.30% 1.50% 1.70% 1.90%
Sub-Saharan
Africa (ex-SA)
Russia/CIS
S Korea
Lat-Am
(ex Brazil)
India
SE Asia
China
Brazil
CEE
S Africa
MENA
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
-0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%
5YGDPGrowth
PE Deals as a % of GDP - 2013
Newer Regions Under-penetrated

28
MENA, SE Asia and Sub-Saharan Africa appear attractive
* Size of the bubble is proportional to GDP 2013 of the respective country in US$ terms
Source: IMF, Bloomberg Finance LP, EMPEA
Scatter bubble* of expected 5Y GDP CAGR against PE penetration levels across key regions
Israel
US
UK
0.50% 0.70% 0.90% 1.10% 1.30% 1.50% 1.70% 1.90%
Sub-Saharan
Africa (ex-SA)
Russia/CIS
S Korea
Lat-Am
(ex Brazil)
India
SE Asia
China
Brazil
CEE
S Africa
MENA
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
-0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%
5YGDPGrowth
PE Deals as a % of GDP - 2013
Newer Regions Under-penetrated

29
Opens up more attractive return opportunities
* Based on deal data from 2009; excludes deals with value <$10mn
Source: S&P Capital IQ
Median EBITDA multiple of deals* in major EM countries along with the universe median
Deals in Newer Regions at Lower Multiples
4x
6x
8x
10x
12x
14x
Turkey CEE China Taiwan India South Korea Brazil Southeast
Asia
Russia Lat-Am (ex
Brazil)
Sub-Saharan
Africa
MENA

Opportunities with EM PE – GP Takeaways
30
 Funds with focus on newer regions to attract greater LP Interest
 Mid size funds might find the near term challenging
 Deal multiples and average holding period to stay elevated
 Investments in established companies better than early stage companies
 Beta driven returns largely a thing of the past, at least in the BRIC
 Significant opportunities remain; Exploiting inefficiencies key to alpha
Fundraising
Deal Making
Return
Generation
Bottom Line
 Deals in sectors closely associated with consumer story a better bet
 Smaller size deals to turn order of the day; BRIC to offer big-ticket deals

31
“Results fuel belief which causes us to take more action and get more
results.”
- Todd Stocker
EM Private Equity: Key Takeaways
Key Takeaways for LPs
Asset Allocation turning more critical than fund manager selection

32
Differential between global and local players has also vanished
* By vintage year
Source: Bloomberg Finance LP, Cambridge Associates
Difference between top quartile and bottom
quartile fund* performers by MOIC – EM vs. DM
Net IRR (in %)* of EM funds by fund manager
domicile group
0.0
0.5
1.0
1.5
2.0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
EM PE US PE Global ex-US DM PE
-5
0
5
10
15
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
NetIRR(%)
Local Global
Gap Between Winners and Losers Receding

33
Opportunities with EM Private Equity – Q & A

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