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Executive Briefings

What are Family Offices and HNWI doing in Latin America?

26 January 2012

An increasing number of US and Latin American family offices and high net worth individuals are looking at making their first commitments to the region’s new generation of PE/VC managers. While large pension funds and sovereign wealth funds typically target managers with over $500m AUM, the universe of LatAm firms managing smaller funds is a natural fit for investors writing smaller tickets.

According to Alex Bangash of Trusted Insight, an online LP network, family office interest in Latin American private equity is surging. Of more than five hundred family offices within Trusted Insight’s network of three thousand institutional investors, sixty percent have expressly cited interest in LatAm.

“We have seen very strong interest from U.S. based family offices in investing in Latin America, particularly Brazil”, concurs Jose Fernandez of investment advisor StepStone.

“Our family office clients have made investments in Latin America, however, they are extremely selective and I would expect their number of investments in the region will be limited as compared to investments in the U.S. and even Asia.”

Larger investors may seek access to Latin America through the increasing number of global PE/VC firms doing deals in the region, but family offices often target local managers with deep networks that help compensate for less established track records in PE/VC.

“In high growth markets like Brazil, Colombia or Peru, we believe it is imperative to be invested with local managers who have the relationships necessary to source non-competitive deals”, comments Rod Walkey of Migration Capital, a Massachusetts based family office. “The local managers also have lower management fees and performance hurdles tied to inflation. Our due diligence led us to conclude that the best risk-adjusted returns will be achieved by investing in different experienced local managers throughout the private equity landscape.”

Walker recently co-founded Latin America Alternatives, a PE fund of funds focused on local managers, to serve family offices looking for intelligence on LatAm funds.

Luis Trevino of Beamonte Investments, which has many family office clients, agrees that they need help in building trusted relationships with emerging managers in Latin America. “They have a very strict process for evaluating the manager, the team, the skills, local relationships.”

Fernandez, Walker and Trevino all cited the ability to co-invest as a major priority for most family offices.

Susana Garcia-Robles at the Multilateral Investment Fund (MIF) sees family offices working with advisors to do direct deals, but also says that they may back a manager when there is a personal connection.

MIF is an LP in CoreCo, a fund active in Central America and managed by Alex von der Goltz. Akila Finance, the family office of a prominent French entrepreneur, is also an LP in CoreCo, a commitment which Von der Goltz attributes to a relationship he built while at Boston Capital Ventures. “European investors in particular are very attracted to Latin America today, but are looking for a trusted person that can help navigate the waters.”

As part of the Inter-American Development bank, MIF backs first time managers and is often a catalyst for other investors to come on board. Says Garcia-Robles, “as a reflection of how attractive the region has become, for every dollar invested by the MIF four dollars used to come from other investors. During 2010-11, the ratio increased to 1:8. The size of the funds has increased, as well as the number of private sector investors.”

Latin American high net worth and angel investors are also becoming more active in backing local venture funds and entrepreneurs. In addition to an anchor investment from MIF, Hernan Fernandez has secured $2.5m from an ex-CEO, an entrepreneur and two angel investors for a $20m co-investment fund managed by Angel Ventures Mexico.

Fernandez perceives a clear risk aversion from more institutionalized players such as family offices when it comes to first time fund managers. As a result, one of his strategies is to target potential investors within the Mexican-American community who are motivated by personal interest.

“We are preparing to launch an Angel Ventures chapter in San Diego this year to target Mexican HNWI in areas like Southern California, Texas, Florida and NY. To date we have two possible American investors in our fund, one based out of Silicon Valley who loves Mexico from a personal standpoint, and an American ex-pat living in Mexico with a passion for entrepreneurship.”

Luis Arbulu, a partner at Hattery, a seed-stage fund focused on global opportunities in the web and mobile space, says the firm’s strategy is to build networks including LPs who are important executives in the tech world, institutional investors and Latin American family offices. Local family offices can often help generate deal opportunities

“These networks inform our investment strategy, provide feedback to the entrepreneurs, connect companies with potential partners and acquirers, etc. We’ve had a number of companies from Latin America come to us through the LP network and we’ve been very impressed by the caliber of the talent.”