Latin Finance DailyBrief

May 16, 2011— PE and VC fundraising for LatAm hit a record $8.1bn in 2010, up 122% from the year before, according to the Latin America Venture Capital Association (LAVCA). According to LAVCA, progress in the region’s regulatory environment and macroeconomic indicators are driving the increase.

“The regulatory environment, transparency, and ease of doing business is very favorable compared to markets like China or India,” Cate Ambrose, president of LAVCA tells LatinFinance. The number of transactions also increased, up 52% with 50 transactions in 2010 from 33 in 2009. Ambrose says 2011 may surpass 2010 for fundraising.

“A lot of institutional investors are looking at making their first commitments to the region,” she says. In order for the industry to mature “there will need to be a deeper pool of managers with established track records and multiple funds raised, invested and exited.”

According to LAVCA, the countries with the best investing environments last year were Chile, Brazil and Mexico, which scored 75, 72 and 63 out of a possible 100 respectively. Chile topped the ranking for the sixth consecutive year, though its scores dropped due to complaints from market participants that fund creation in the country remains slow. Brazil’s score dropped from the year before because of restrictions on local institutional investors, but the report says that it is making efforts to establish best practices in transparency and accountancy standards.

Regulators in Mexico showed increased awareness of the asset class and continue to modify legislation to allow pension funds to invest in PE, with new PE/VC funds also being formed in 2010. Industry regulation in Colombia improved in 2010, and a new decree clarified tax and other issues for PE investors. Peru’s score dropped due to a decline in the formation of funds and restrictions on local institutional investors.

Meanwhile, Argentina continues to struggle to develop a viable PE/VC industry. It scored 43, ranking it tenth alongside El Salvador and above only the Dominican Republic. The 12 countries in the region were scored on criteria including laws on fund formation, tax treatment, protection of minority shareholder rights, restriction on institutional investors, capital market development and corporate governance requirements.