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Advent Enters Mexican Pension Sector with Purchase of InverCap Holdings

20 December 2012

(Wall Street Journal)–Private equity firm Advent International has found an entry-point into Mexico’s fast-consolidating pension fund sector via the purchase of a significant stake in InverCap Holdings.

Luis Solorzano, who leads Advent’s Mexico office, said in an interview that his private equity firm identified InverCap as an interesting vehicle for tapping the country’s pension business some time ago, and that through a relationship with InverCap’s director, Advent was given the opportunity last week to buy out institutional investors who were looking to exit the pension manager.

Mr. Solorzano declined to disclose the deal’s financial terms, which he said were confidential.

Mexican pension funds, known as Afores, administer 1.86 trillion pesos ($146 billion) in assets for workers in more than 48 million accounts, according to November data from pension regulator Consar.

Over the past year, Mexican bank Grupo Financiero Banorte SAB (GBOOY, GFNORTE.MX) has driven consolidation in the sector, first via the purchase of Prudential Financial Inc.’s (PRU) 50% stake in the Mexican Social Security Institute’s Afore XXI, and most recently via Afore XXI Banorte’s acquisition of Banco Bilbao Vizcaya Argentaria SA’s (BBVA) Mexican pension business.

Those purchases narrowed the field to 12 Afores, and Banorte’s chief executive Alejandro Valenzuela said he expects the sector to further concentrate among seven or eight players.

Consar has paved the way for more consolidation by blessing the purchase of the Bancomer assets, which catapults Afore XXI Banorte to the top position among Mexican pension administrators while also giving it a bigger market share than previously permitted by the regulator.

Mexican regulations stipulate that pension fund administrators shouldn’t have a market share of more than 20% each. Those guidelines, however, can be waived if a committee of union, government and employer representatives deems it in the best interest of savers, as was the case in the Afore XXI Banorte-BBVA transaction.

With just over 2.9 million accounts, Afore InverCap is currently the seventh-biggest pension administrator in the Mexican system. By assets under management, InverCap is the sixth-biggest with $7.66 billion at the end of November.

Advent typically stays with an investment for three to seven years, but that time horizon certainly isn’t written in stone, Mr. Solorzano said. Advent is fully prepared to address opportunities for consolidation that could arise in the Mexican pension sector, including the potential to make additional pension fund purchases or to sell out of InverCap, he added.

Cesar Montemayor, InverCap’s chief executive, said in a statement that his fund was pleased to have a partner with the global reach, local market knowledge and experience in financial services of Advent. Reached by phone in Monterrey, Mexico, Mr. Montemayor said he also sees the Mexican pension sector continuing to consolidate, since it’s a business of scale, but that InverCap intends to stay in the business long-term.

While InverCap has been growing organically, Mr. Montemayor said he wouldn’t rule out the possibility of InverCap making an acquisition down the road.

More broadly, the Mexican economy is enjoying solid economic growth that is seen expanding the country’s middle class, while a recently approved labor reform is expected to drive job creation, thus expanding the number of workers eligible for an employment-linked pension program.

Write to Amy Guthrie at [email protected]