In January and February over 120 PE and VC firms reported 2009 deal and fundraising activity to LAVCA for publication in our annual Yearbook (survey results will be made public in April).

Conversations with those fund managers have also pointed up fresh momentum on fundraising for Latin America in 2010 – one leading regional firm that has been in the market for six months describes a dramatic uptick in commitments from global LPs in the first eight weeks of the year. They have had to increase their original target for the fund and are set to close in late March.

Fund managers with long experience in Latin America are cautious about making projections, but I elicited some insights on what to expect in 2010 and beyond from LAVCA members participating in a panel on The Future of Private Equity and Venture Capital in Latin America at the Council of the Americas (COA) in late December (hyperlink).

One panelist, Ettore Biagioni of Alothon Group, notes that since the fourth quarter of 2009 he has seen LPs making a renewed effort to get to know who is in the market in LatAm, doing due diligence and attending conferences.

Alothon manages a $200m private equity fund focused primarily on Brazil, a market which is attracting a new set of global institutional investors to the region. Late last year the Central Bank imposed a financial transactions tax on international flows into the country as an attempt to head off a speculative bubble, but Brazilian PE managers are holding onto a healthy degree of skepticism.

“We have not yet seen the inflationary effect of IPO public markets moving to mid-market private equity, and fund managers are disciplined on acquisition prices – unlike previous run ups of equity markets which drove up prices. We are less likely to see asset bubbles in Brazil in 2010, taking into account election year uncertainty and lessons learned from 2007”, says Biagioni.

He adds, “looking longer-term, one key question is whether the significant investment going into much-needed infrastructure projects, and construction for the World Cup and Olympics, will be well spent in order to position the country for future growth.”

Another panelist from the COA event highlights the mid to long term effect of local pension funds that are committing to PE in Brazil, Peru, Colombia, Chile, and most recently Mexico. Scott Swensen of Conduit Capital Partners predicts that this trend will continue, hastening the growth of the locally managed private equity fund industries.

“However, many international investors dislike single country funds due to the lack of diversification, so there will continue to be a large demand among non-Latin investors for regional funds, which are often managed by groups based outside the region”, says Scott. “These factors will allow both groups to flourish. Single country funds not based in the target country are likely to struggle to find investors.”

Global interest in Latin America as a destination for PE has evolved alongside incipient activity in early stage investing over the past 18 months, with new links developing between Silicon Valley and key markets in the region.

Susan Segal, who pioneered LatAm venture capital at Chase Capital Partners between 1997 and 2001, participated in the December panel in her current role as President of the Council of the Americas. She is also involved with Endeavor, the non-profit group that cultivates entrepreneurs in emerging markets.

“Being involved with Endeavor and with my experience at Chase Capital Partners, I have a stream of entrepreneurs that walk through my door to tell me about their companies. And, frankly, today I see more interesting companies than ever before, and more young entrepreneurs that have the nerve to start something and to try to build it.”

Segal attributes this shift to two key factors. “One is the democratization of information and the Internet. So today people know about Apple. They know about Bill Gates. They have role models and know about all the companies that are started in the US. They meet people on Facebook, so it’s a whole different reality.”

Then, entrepreneurs are more confident and empowered as a result of the strength of the region’s economies and private sector in recent years. “The rise of the middle class is creating a new range of opportunities. Beyond technology, there are many entrepreneurs focused on rising consumer demand, or alternative energy for example.”

One firm betting on the long-term opportunity for VC and growth capital in the region is Silicon Valley life sciences investor Burrill & Company. The firm is launching two local vehicles, in Brazil and Chile, and has staffed an office in Sao Paulo headed by Joao Paulo Baptista.

In addition to commitments from institutions such as the Multilateral Investment Fund, BNDES and CORFO, “we have been running around the world getting large financial investors interested in our activities in Latin America”, comments founder Steve Burrill.

Burrill offers an overview of what has driven the firm into the region. “Biology is at the base of the biggest challenges facing the world today: global climate change; energy sufficiency; agriculture and nutrition supply; healthcare. In Brazil for example, the country is a world leader in agriculture, and in alternative energy through ethanol. The government is striving to provide healthcare coverage for a growing population. And in the area of stem cell research, Brazil is doing science at same level as rest of world.”

Finally, Richard Frank, the CEO of global emerging markets PE firm Darby Overseas and another panelist at the COA event, offers some historical context as a backdrop for investors looking at the region for the first time. “Like the key Latin American economies, the region’s private equity industry has had sharp peaks and valleys over the past 20 years. During the down turns, many firms departed; with upswings newcomers rush in, trying to catch the waves. Volatility seems to be easing – but successful Latin American private equity requires smart, long term investing – not market timing. I find the same is true in Asia and CEE.”