Latin America

Latin America 1H 2017 Insight

Following the challenging investment environment of the last two years, the private capital landscape in Latin America may finally be showing signs of renewed strength. Disclosed capital invested in 1H 2017 reached almost US$3 billion, a 54% increase compared to the same period in 2016. Buyouts in energy and infrastructure drove much of this uptick, with Actis’s acquisitions of renewable power assets in the region accounting for 45% of total disclosed capital invested. The region’s key markets have displayed divergent trends: Brazil had the highest 1H deal count on EMPEA’s record since 2008 and the highest first-half level of capital deployed since 2014—in spite of nearly non-existent fundraising for the country. In contrast, Mexico-specific funds accounted for over a third of the region’s fundraising total so far this year, but the number of deals completed in the country dropped by more than half compared to 2H 2016, perhaps reflecting concerns over currency volatility and trade relations with the United States. Given the diversity of factors affecting individual markets in the region, growth in private capital activity in Latin America will likely continue to be uneven.

Brazil 1H 2017 Insight

Fund managers raised just US$133 million for Brazil-specific funds so far in 2017, with many large domestic LPs limiting allocations to private equity during the recent recession. This pullback has resulted in many GPs turning to more local family offices and international LPs for capital—not an easy task, given Brazil’s political turmoil and slow economic recovery. In contrast, GPs invested US$1.4 billion in Brazil in 1H 2017, the highest first-half total since 2014. Over 90% of capital invested was deployed through three large energy and infrastructure deals, as fund managers took advantage of lower valuations and the government’s recent efforts to boost the private sector through concessions. Encouraging signs have also come from Brazil’s public markets, with the three PE-backed IPOs taking place in 1H and two more completed in July. These IPOs suggests that resurgent public markets may be a source of liquidity for fund managers. While it is still unclear if this recovery will be sustained, some GPs’ cautious optimism about Brazil appears justified.

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.

Download the full article here. 

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.

Download the full article 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. 

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.