GLOBAL INVESTORS BULLISH ON LATIN AMERICA’S NEWER PE MARKETS
• One third of existing investors (LPs) are accelerating their commitments to Latin American PE
• LPs see the most attractive risk/return profile for PE in Mexico, Peru and Colombia
• Over half of investors in Latin American PE expect net returns of 16%+
• However, political climate, dealflow and entry valuations have grown more challenging since 2012
• There are significant differences in the target industry sectors of international and domestic PE investors
Investors believe the overall risk/return equation for Latin American private equity (PE) is improving, though conditions in Brazil are more challenging, according to the annual Coller Capital/LAVCA Latin American Private Equity Survey. According to LPs, the risk-return equation is improving in Mexico, Peru and Colombia – more than half of LPs say these countries will provide very attractive markets for investment in the next two years.
This upbeat assessment is reflected in investors’ return expectations: more than half (56%) of domestic and international investors expect net annual returns of 16% or higher from Latin American PE overall. Almost three quarters of LPs expect their private equity commitments in Mexico, Peru and Colombia to deliver annual net returns of 16%+, and half of LPs expect this level of return from Brazil and Chile.
In consequence, over a third (35%) of existing investors expect to accelerate their new fund commitments to Latin American PE. Mexico-focused funds in particular are set to boom. Just 15% of investors with Latin American PE exposure currently have commitments to Mexico-specific PE funds; within three years 39% of LPs expect to have Mexico-focused commitments.
While Latin America’s overall growth story remains highly attractive to private equity investors – even compared with other emerging markets – LPs believe challenges have grown since last year, particularly in terms of the region’s political climate, dealflow and entry valuations.
For Coller Capital, Erwin Roex commented: “These findings are a strong endorsement of the private equity opportunities in Latin America. Despite economic challenges in individual markets, the region retains its attractiveness to both domestic and international LPs, and this is reflected in very strong return expectations. The newer PE markets of Mexico, Peru and Colombia are seen as particularly exciting.”
LAVCA President Cate Ambrose said: “The survey results demonstrate that LP views on the region continue to evolve. Over time, investors are reaching a more sophisticated understanding of the opportunity that Latin America presents. The findings point to confidence in the mid- to long-term expectations for PE markets across the region.”
Promising industry sectors for Latin American PE investment
There is a marked difference in how domestically-based and international investors see the attractiveness of individual industry sectors in Latin America. Far more Latin American LPs see good PE opportunities in manufacturing/logistics and real estate, while international LPs find the oil and gas sector particularly attractive. Domestic and international LPs agree that the consumer goods and retail sectors will be very attractive for PE investment over the next three years.
How investors access Latin American private equity
Few LPs (just 10%) employ consultants or gatekeepers to help them access Latin American PE. Pan-regional funds remain the most popular method of accessing Latin American PE for both domestic and international investors: 59% of LPs currently invest this way, and 70% of investors expect to be doing so within three years.
Environmental, social and governance (ESG) investment criteria
ESG considerations have a significant impact on LPs’ investment decisions in Latin American PE investing: three quarters of LPs say ESG factors materially impact their fund selection process in Latin America, and 28% of LPs have investment mandates that are directly restricted by ESG issues.
Additional Survey findings:
The 2013 edition of the Survey also charts investors’ views and opinions on:
• Target allocations to private equity, real estate and hedge funds
• The challenges facing LPs considering a first PE investment in the region
• Direct investments and co-investing by LPs
• Expected changes in exit routes for Latin American PE
• The likelihood of LPs investing in a GP’s first Latin American fund
For further information on the Coller Capital/LAVCA Latin American Private Equity Survey – 2013, please contact any of the following:
Caitlin Mitchell: +1 (646) 315 6737
LAVCA, New York [email protected]
Volker Northoff: +49 694 089 8020
Northoff.Com, Frankfurt [email protected]
Notes to Editors
• LPs (Limited Partners) are investors in private equity funds.
• GPs (General Partners) are private equity fund managers.
• Private Equity (PE) is used as a generic term covering venture capital, growth capital, buyout and mezzanine investments.
• ‘International’ investors in this survey are defined as LPs headquartered outside Latin America.
• Coller Capital and LAVCA’s Latin American Private Equity Survey is a unique snapshot of trends in Latin American private equity – an annual overview of the plans and opinions of institutional investors in private equity funds. These investors, based in Latin America, North America, Europe and Asia-Pacific, form a representative sample of LPs investing in Latin American PE.
• This Survey captured the views of 105 private equity investors from around the world in June-July 2013. The Survey’s findings are globally representative of the LP population by: investor location; type of investing organisation; total assets under management; and length of experience of private equity investing.
About Coller Capital
Coller Capital, founded in 1990, is the leading global investor in private equity ‘secondaries’ – the acquisition of positions in private equity funds from the original investors and of portfolios of companies from corporate or institutional owners. From its offices in London, New York and Hong Kong, the firm makes investments all round the world, committing from $1 million to $1 billion-plus to individual transactions. Between them, Coller Capital-advised secondaries funds have interests in over 300 primary-market funds and 2,500 private companies worldwide.
In July 2012, Coller Capital closed its sixth fund, Coller International Partners VI, with capital commitments of $5.5 billion from more than 200 of the world’s leading institutional investors.
Recent investments include: transactions with quoted private equity businesses SVG Capital and 3i (each of which won a 2009 European Deal of the Year award); a £480m transaction with Lloyds Banking Group in 2010 (which also won a European Secondaries Deal of the Year award); the acquisition of several $350m+ portfolios from Crédit Agricole in 2011 and 2012; and the agreement to finance the purchase of a $1.9bn PE portfolio from Lloyds Banking Group in 2012 (which also won a European Secondaries Deal of the Year award).
In 2013, Coller Capital won Financial News’ European Secondaries Firm of the Year award, while in 2012, Real Deals named the firm Secondaries House of the Year.
The Latin American Private Equity & Venture Capital Association (LAVCA) is a not-for-profit membership organization dedicated to supporting the growth of private equity and venture capital in Latin America and the Caribbean. LAVCA’s membership is comprised of over 150 firms, from leading global investment firms active in the region to local fund managers from Mexico to Argentina. Member firms control assets in excess of US$50 billion, directed at capitalizing and growing Latin American businesses. For more information, visit www.lavca.org.