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LAVCA in the News

Latin America Private Equity Funds Scrambling For $16B -Preqin

22 March 2011

By Amy Or of Dow Jones Newswires

The Wall Street Journal

March 22, 2011— About 50 Latin America-focused private equity funds are on the road, seeking to raise an aggregate $16.1 billion, roughly double the record amount raised last year, according to data provider Preqin.

Gavea Investimentos, in which J.P. Morgan Chase & Co.’s (JPM) Highbridge Capital Management has a majority stake, is hoping to amass $1.5 billion for a Brazilian fund; Patria Investimentos, 40% owned by Blackstone Group LP (BX), is marketing an infrastructure fund and a real-estate fund to raise a combined $1.4 billion for Brazilian investments, Preqin said.

Australia’s Macquarie Infrastructure and Real Assets, whose clients are primarily global pension and superannuation funds, is on the road for a $1.1 billion infrastructure fund in Mexico, and The Carlyle Group is targeting $500 million for a South American buyout fund, the data provider added.

The intense competition for capital to invest in the region came after a record $8.1 billion was raised last year, including two funds of more than $1.5 billion, the Latin American Venture Capital Association said.

Some investors worry the region is beginning to get crowded with investors and their money.

“While this is the time to raise money for Latin American investments, not every fund will get the capital. And if they do, I doubt if there are enough deals for them,” said Scott Voss, a principal with the Boston-based private equity fund of funds manager HarbourVest Partners LLC.

And the stakes of not closing deals and making use of committed capital are getting higher.

“Latin America is a very labor-intensive market. It takes front-end staff to generate deals, knowledge to pick the right ones, and a lot of operational experience to create value,” said Ernest Bachrach, cohead of Latin America for Advent International, a buyout firm that raised money last year for Latin American investments. “With the average time from sourcing a deal to closing spanning up to one to 1 1/2 years, an inability to close a deal often means one is behind the curve.”

In developed markets like the U.S. and Europe, it sometimes takes as little as six to eight weeks to close a deal, posing a lower opportunity cost, and allowing managers time to work on more deals.

To many private equity managers, the two managers’ concerns may seem premature.

After all, Latin America has just returned to investors’ favor, after a short period of boom and bust in the early 1990s, when growth was cut short by several financial crises.

And there are fewer managers than in some other emerging markets. Managers said there are about 150 Latin America-focused managers, whereas there are more than 400 for China, according to Asia Private Equity Research.

But private equity managers believe the region’s improved national balance sheets, stronger banking system and supportive government policies are conducive to long-term private investments.

Fundraising for Latin American funds was red-hot last year, with managers closing sizeable deals: Latin American fund Southern Cross Group garnered $1.68 billion and Boston-based Advent International raised $1.65 billion in the two largest Latin America-dedicated funds.

Advent said rather than joining the rush for deals, especially in Brazil, it will seek exits for some of its portfolio companies.

“Brazil is not necessarily the only country that provides great risk-adjusted returns,” said Bachrach. “It is starting to feel a little bit over the parity mark.”

Earlier this month, Advent floated one of its portfolio companies–Brazilian restaurant operator International Meal Co. Holdings SA (IMCH3.BR)–in a $249 million initial public offering.

Advent has made 15 investments in Brazil since 1997. Others portfolio companies include Brazilian private education company Kronto, Brazil’s biggest clearing house Cetip SA – Balcao Organizado de Ativos & Derivativos (CTIP3.BR) and highway restaurant chain Frango Assado.