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Executive Briefings

LAVCA Scorecard: How Do the Major Markets Measure Up?

29 May 2014

With this edition of the Latin American PE/VC Report we are launching the 2014 Scorecard Update, LAVCA’s annual ranking of the investment environment for private capital in regional markets, produced in partnership with the Multilateral Investment Fund of the IDB.

This year’s Scorecard is an interim edition as we evaluate potential changes to the ranking methodology for 2015, so while new regulation affecting PE/VC investors is highlighted, we held off on changing any scores. And we relied on our deep network of Latin American lawyers, investors, and advisors for input and expertise (see below).

My colleague Ksenija Jovanovic and I also had the opportunity to get a first-hand update in meetings with regulators and local industry groups in Mexico, Brazil, Chile, Peru, and Colombia over the last two months. Collaboration with policy makers in the region continues to play a central role in LAVCA’s agenda, under the leadership of our Public Policy and Global Standards Council, chaired by Martin Diaz Plata of Capital Group Private Markets.

One of the most closely monitored indicators in the Scorecard is “Restrictions on Local Institutional Investors Investing in PE/VC”, given the important role that local pension funds have played for both domestic and international GPs active in Latin America.

In Mexico we met with the national pension fund regulator CONSAR to discuss future changes that would allow Afores to invest into private PE funds (as opposed to exclusively through the publicly traded CKD structure), both domestically as well as internationally. We also spoke with investment officers from three of the largest Afores, and with the pension fund association AMAFORE; there was a clear message that investors and regulators are working towards greater flexibility that will allow the Afores to diversify their growing reserves.

(AMEXCAP, the Mexican PE/VC Association, has been an important conduit for LAVCA in Mexico during a period when investor interest in the market has piqued – you can download an overview of regulatory reforms in Mexico produced by AMEXCAP here)

Rules governing pension funds have also been evolving in Peru, but the implementation of regulation approved in 2012 increasing the cap on commitments to alternative asset classes, and aimed at simplifying the registration process for funds, has been slow. PE firms report that there has been some inconsistency in how the banking superintendency is applying very specific aspects of the regulation. LAVCA will be sitting down with Peruvian policymakers in July to compare notes on best practices in other markets, as well as to enter into a broader discussion on political support for the development of the Peruvian investment ecosystem.

Political support for PE/VC remains strong in Colombia, with a range of institutions acting on behalf of the industry – from national funds association ColCapital to development bank Bancoldex, and at the municipal level Ruta N in Medellin. In 2013, Colombian regulators made needed improvements to the PE/VC fund framework and introduced real estate funds as a new category distinct from PE. LAVCA met with ColCapital in Bogotá in April, and we will be back for our annual policy roundtable in November.

While Chile has maintained the top position in the LAVCA Scorecard since its launch in 2006, the country may lose ground in next year’s ranking in light of changes under the new administration elected this year. Local funds association ACAFI engaged actively with the previous government on passage of a new Funds Law that went into effect in January, but any gains are likely to be reversed with a new tax reform put forward by the newly elected administration, which appears to be unsympathetic to business and investor interests.

Finally, in Brazil Ksenija and I got an update from local association ABVCAP on their public policy agenda – there is a broad revision of PE/VC funds regulation expected in 2014. Among other areas, ABVCAP cites changes that will provide more detailed regulatory guidance on what is considered a PE/VC fund, and on the treatment of foreign investors in PE/VC funds.

In addition to the focus on regulation affecting the region’s PE/VC industry, LAVCA’s Public Policy and Global Standards Council is monitoring awareness and initiatives around Environmental, Social and Governance (ESG) practices by private investors in Latin America. LAVCA members will be hearing about new projects in this area in an upcoming Member Insider.

LAVCA collaborated with law firms, GPs, associations, and individuals in the production of the 2013/2014 Scorecard Update, including:

  • Argentina: Marval O’Farrell & Mairal (Diego Krischcautzky); Brown Rudnick (Alejandro Fiuza)
  • Brazil: Mattos Filho (Daniel Miranda, Guilherme Bouzan); ABVCAP; Stratus Group (Álvaro Gonçalves); EY (Carlos Ascutti)
  • Chile: Philippi, Yrarrazaval, Pulido, & Brunner Abogados (Constanza Rodríguez)
  • Colombia: Brigard & Urrutia (Luis Gabriel Morcillo, Carlos Fradique Méndez); ColCapital; LAEFM Colombia (María Ángela Córdoba)
  • Costa Rica: Batalla Abogados (Rodrigo Zelaya, Alejandro Batalla)
  • Mexico: KPMG (Victor Esquivel); AMEXCAP; Darby Overseas Investments (Jaime Salinas)
  • Peru: Alterra (Ricardo Postigo); Rubio, Leguia, Normand (Sergio Amiel)
  • Regionally: Baker & McKenzie