Tuesday, June 28, 2011

PRAHL Michael, CANNARSI Alessandro, ZEISBERGER Claudia

INSEAD Working Paper 2011/75/DSSSRN's Top Ten download list for Corporate Governance: Governance of Special Types of Firms eJournal, INTL Subject Matter eJournals, LSN: Corporate Governance International Take a look at the statistics here

This report takes a closer look at a crucial aspect of private equity (PE), namely the ability of PE firms to exit from their investments in a manner that crystallizes the value created over the period of their ownership. Specifically, it considers exits from private equity investments in Asia’s two largest emerging markets, China and India. The aim is to increase the transparency of this asset class by providing an overview of the market and trends over time, highlighting differences between China and India, and delving deeper into a sample of detailed data provided by INSEAD's inaugural panel of limited partners (LPs). The report highlights the large number of exits in both markets, we observed about 12,502 in this study, and how the speed of established exits (IPOs, M&As) continues to accelerate, thereby boosting investor confidence in Asia’s two largest emerging markets, and fuelling the growth of the asset class through fund raising and investing. We show a divergence between the exit channels favoured in China (IPOs) and India (M&As), and how this has impacted overall exit size, as well as the influence of public market cycles on exit timing. As far as possible – given the limitations of a database relying on public data – we attempt to provide some indication of the broader performance of PE exits benchmarked against relevant public market indices. In both China and India we find a lower-than-expected correlation between PE returns and public market returns, pointing to company- and investment-specific factors as the main drivers of performance in these markets. This analysis is complemented with an in-depth look at realised vs. unrealised returns, drawing upon data from our LP panel. The report serves as the baseline research for a study that will be updated on an annual basis in the future, offering private equity investors in China and India increasingly valuable insights into the development of a fast-changing asset class.