News & Analysis

LPs shy on emerging markets secondaries

Interest in the secondaries markets may grow as more primary investors cool their concerns, according to Steve Costabile, global head of private funds at PineBridge.

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The ratio of limited partners interested in emerging markets secondaries is roughly 30 percent to 70 percent, according to Steve Costabile, global head of private funds group and managing director at PineBridge Investments.

However, secondaries fund managers are seeing a high supply of potential transactions and, as buyers, they have the potential to acquire assets at attractive prices by exploiting market inefficiencies, PineBridge previously told Secondaries Investor.

Emerging markets secondaries comprise between 5 percent and 10 percent of the global secondaries deal flow, according to UBS. However, PineBridge expects emerging markets to represent between 10 and 15 percent of the deal flow in the future.Steve Costabile

Some LPs have added emerging market allocations to their private equity portfolios. The San Bernardino County Employees’ Retirement System currently allocates 5.6 percent of its private equity portfolio to emerging markets, but has a 6 percent target allocation. Similarly, the New Jersey Division of Investments recently partnered with Siguler Guff & Company on an emerging markets mandate.

“It is a good indicator that as primary investors cool concerns about emerging markets, secondary transactions can commence,” Costabile said.

Still, investing in emerging markets comes with a lot of challenges, like headline and currency risk, leading to short- to medium-term dislocations, according to PineBridge.

Other US pensions such as the Florida State Board of Administration and the Kansas Public Employees Retirement System don’t allocate their investments by geography. The Texas Employees Retirement System and the Washington State Investment Board have previously invested in primary funds in emerging markets, but neither has a specific allocation for future investments in the region.

PineBridge is currently in market with its PineBridge Secondary Partners III, which launched last year and had raised $130 million as of July 2013, according to PEI’s Research and Analytics division. The fund has a $500 million target. PineBridge declined to comment on fundraising.