CDC profits from emerging markets

CDC Group, the UK government-backed private equity emerging markets fund of funds manager, has enjoyed a strong year as revealed in its latest financial results for the 12 months to 31 December 2006.

Its net assets increased by 23 percent to £2 billion as a result of substantial valuation gains. Total returns after tax of £375 million will be recycled into new investments in poor countries, while new commitments increased by 78 percent  to £413 million.

This figure compared with £433 million of third party capital mobilised alongside CDC in Actis and Aureos funds of funds over the last three years.

CDC’s gross portfolio performance of 43 percent, when denominated in US dollars, outstripped the MSCI Emerging Markets Index by 14 percent.

The results include an exchange loss of £35 million against the portfolio, as most of CDC’s portfolio is dollar based and therefore suffers a reduction in the pound sterling value, net of hedging, as the US dollar weakens.

However, Malcolm Williamson, CDC’s chairman sounded a note of caution. He said: “The continuing benign markets in developing economies are a mixed blessing. Although investors have seen strong returns, optimism about the future needs to be tempered with realism… Investors looking for opportunities in these geographies need to be wary of poor decision making against the backdrop of this cash-rich environment.”

Despite this CDC still backed 19 new fund managers, up 73 percent, including Helios in Africa; Cape II in Nigeria; Business Partners International in Kenya; Kendall Court in Asia; AIF Capital Asia Fund III and Capital Today in China.

Acap, the first private equity fund in Afghanistan, launched with a $5.8m commitment from CDC. Citigroup’s first ever dedicated African private equity fund was raised with CDC commitment of $100m as sole investor.

The value of CDC’s portfolio in Africa rose by 17 percent to £392 million and in Asia by 14 percent  to £257 million

Williamson said: “CDC’s mission is to generate wealth, broadly shared, in emerging markets, particularly the poorer countries, by providing capital for investment in sustainable and responsibly managed private sector businesses.  2006 was a year of considerable growth for most economies of the developing world. However, the private equity industry is not developing at the pace we would like to see.”