Regions

Latin America

The Shifting Landscape for Private Capital in Brazil

Brazilians have a saying: “Brazil is the country of the future—and always will be.” To what extent is this adage true of the country’s private capital industry? In light of a tumultuous few years defined by economic volatility and political scandal, are fund managers in Brazil in a position to fully realize the market’s potential? With Brazil now on a clear trajectory of economic recovery and improving capital market conditions, this EMPEA Brief examines how key developments in Latin America’s largest market are contributing to the evolution of its private investment landscape. Fund managers and institutional investors considering Brazil’s prospects may find that the recent crisis has begun to promote positive changes in the country’s private capital industry and that current conditions provide ample opportunity for investment.

Read the full report here.

Latin America Q1 2018 Insight

Deals in the electricity and travel & leisure sectors drove capital invested in Latin America to US$1.5 billion in the first quarter of 2018, on par with the total for Q1 2017. Advent International’s investment in Chile-based casino operator Enjoy points to a renewed confidence in the consumer discretionary segment. In particular, total capital invested in travel & leisure reached US$442 million in Q1 2018—higher than any full-year total recorded by EMPEA for the region. However, disclosed capital deployed across all sectors in the region has outpaced fundraising since 2016. This capital ‘underhang’ is particularly notable in Brazil, as explored in the EMPEA Brief: The Shifting Landscape for Private Capital in Brazil. Indeed, only three funds reached closes during Q1 2018 in Latin America, of which two are Mexico-focused vehicles. Beyond the CKDs and traditional funds included in EMPEA reporting, Mexico-focused GPs are increasingly pursuing innovative ways to raise capital: Axis Capital Management and Promecap both listed special purpose acquisition companies (SPACs) in Mexico, following the lead of Riverstone Holdings, which listed its own SPAC in 2017. Such approaches may prove useful in attracting more capital to the region in the years ahead.

View all Q1 2018 Data Insights here.

Views from the Field: Argentina

For investors who have endured nearly two decades of hardship in Argentina, new developments in one of Latin America’s largest economies point to better days ahead. The country was once a leading destination for private equity when the asset class emerged in the region in the 1980s. However, after facing chronic economic challenges and growing competition from other regional markets, conditions for investment in Argentina declined significantly. The culmination of its woes came at the turn of the century, when the country defaulted on its public debt during a crippling financial crisis. The deep recession dealt a severe blow to foreign investors, who all but deserted the country.

Download the full brief here.

Brazil Year-End 2017 Insight 

Fundraising for Brazil-focused private capital vehicles continues to prove challenging. Although funds raised increased from US$672 million to US$1.5 billion from 2016 to 2017, no Brazil-dedicated funds reached a close during the first quarter of 2018. As outlined in the EMPEA Brief: The Shifting Landscape for Private Capital in Brazil, the country has faced a shortfall in new commitments from investors at a time when the market may represent a better relative value than in the past. Patria Investments’ latest buyout fund—reportedly aiming to raise US$2.5 billion—may go some way to bolstering fundraising totals. However, more than a third of Brazil-focused funds currently raising capital are venture capital (VC) funds targeting the smaller end of the deal spectrum, and VC deals accounted for 39% of capital invested in the quarter. VC activity in the country has focused on filling a gap in both business-focused and consumer-facing technology and financial services platforms, as exemplified by the US$150 million Series E round for fintech company Nubank. Moreover, Didi Chuxing’s acquisition of Brazilian ride-hailing startup 99—reportedly valuing the company at US$1 billion—further demonstrates the growing prominence of venture capital in Brazil.

View all Q1 2018 Data Insights here.

Private Equity in Mexico

For decades, Mexico remained under the radar as private equity investors with an interest in Latin America poured their money into Brazil. Headline risk around corruption and the war on drugs, a relatively small pool of fund managers, and the high concentration of large, family-owned businesses potentially restricting deal flow were among the many factors that had deterred greater investment. However, the tide appears to be turning—particularly with the entrance of the local pension funds (or Afores), which in 2009 were given the freedom to invest 10% of their assets into private equity under new regulations. Since this time, fund sizes for the more established general partners in the region have grown, while the total number of private equity and venture capital funds operating in the market has multiplied. In the eight years leading to 2016, Mexico-dedicated funds had raised nearly US$8.7 billion, with an additional portion of the US$12.7 billion raised by regional funds earmarked for the market.

Download the full report here. 

Legal Reforms Against Corruption in Mexico

On July 18, 2016 a group of laws that comprises the legal framework that will make effective the public strategies and policies for fighting corruption and impunity, were published in Mexico. The objective of this legal reform is to achieve full coordination of the efforts of the Federation, the States of the Federation, municipalities and the government of Mexico City, to prevent, investigate and punish administrative violations and corruption by public officers and by private parties involved.

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Impact Case Study: Koba International Group S.A. 

The Abraaj Group was selected as a finalist in the EMPEA Institute’s 2016 Sustainability & Operational Excellence Challenge for its active management of Koba, a hard discount retailer in Colombia. Koba, the first hard discount retailer in Colombia, offers high quality food and basic staples at prices that can be up to 50% cheaper than those offered by traditional retailers. Considering that low- and middle-income families typically spend a large portion of their money on such goods, these savings have had a material impact on their daily lives. With over 500 stores in operation to date—up from around 20 at the time of investment—Koba now serves over 10 million clients (tickets) per month.

Download the Koba International case study here.

Colombia: Ten Years of the Development of the Private Equity Industry

Colombia’s PE industry has reached its first decade (2006-2016). Incorporation of local funds has been successful for an emerging economy, placing Colombia in the spotlight of foreign and domestic GPs willing to incorporate local PE vehicles or to raise capital from local investors, specifically in the real estate and infrastructure sectors. Simultaneously, local investors such as pension funds and insurance companies are increasingly seeking attractive PE opportunities offered by international managers abroad.

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New Brazilian Regulations Promote Important Changes for Private Equity Funds (FIPs) in Brazil

On August 30 this year the Brazilian Securities Commission (“Comissão de Valores Mobiliários” or “CVM”) enacted Instruction CVM No. 578 (“Instruction 578”) to govern the formation, operation and management of private equity funds in Brazil. Instruction 578 revoked and replaced Instruction CVM No. 391, as amended, as well as several other regulations on the matter and is now the main regulation concerning private equity funds formed in Brazil.

Download the full article here.