Latin America Year-End 2017 Insight

Fund managers raised US$4.6 billion and invested US$5.3 billion in Latin America in 2017, slightly outpacing 2016 totals. Deals in infrastructure and real assets drove investment in the region, as fund managers tapped into increasing demand for alternative electricity and transportation infrastructure. Opportunistic dealmaking for power and forestry assets also helped raise buyout investment totals to US$3.3 billion, the highest on EMPEA’s record. Infrastructure funds accounted for most of Mexico-focused fundraising, which increased 35%, year-on-year, to US$1.6 billion, as domestic LPs remained committed to the asset class. Recent regulatory changes for private capital vehicles may draw even more capital to the country. Nonetheless, deal count and capital invested in Mexico saw sharp year-on-year declines of 32% and 48%, respectively. Elsewhere in the region, fundraising for Brazil increased markedly, with the US$1.5 billion raised in 2017 representing a 121% increase from the record low of the previous year. Established GPs are currently raising several large funds for the country, indicating Brazil’s economic growth may have renewed LP interest despite political turbulence. If this same outlook prevails across the region, fund managers will have plenty of capital to deploy in Latin America in 2018.

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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.

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Brazil Year-End 2017 Insight 

Fundraising for Brazil-focused private capital vehicles rebounded in 2017. Following a steep decline that began in 2014, GPs raised US$1.5 billion for the country—more than double the previous year’s amount. Although political challenges remain, LPs have increased commitments to the country amid sustained economic growth. In line with this uptick, established fund managers such as Patria Investments, Vinci Partners, Kinea Private Equity, Stratus Group and Bozano Investimentos have returned to market, together aiming to raise more than US$5 billion for the country. In addition to greater fundraising, GPs invested US$2.4 billion in 2017, a year-on-year increase of 14%. Investments in power assets, which accounted for half of all capital deployed, drove this increase as opportunistic deals and greater demand for renewable energy attracted a record amount of capital to the sector. Fund managers also took to public markets to return capital to investors. The six PE-backed IPOs that took place in 2017—compared to just one from 2014 to 2016—raised more than US$2 billion in aggregate, with proceeds to private funds accounting for more than a third of that total. Sustaining these strong returns will be crucial for fund managers to draw more capital to Brazil in the year ahead.

View all Year-End 2017 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.

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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.

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