Growth investor General Atlantic has been in Latin America for more than two decades, and has invested in excess of $5.2 billion across a portfolio of 21 companies during that time. The region represents around 12 percent of the firm’s global portfolio by value.
Despite its tough macro environment, LatAm has been one of the best-performing regions for General Atlantic, according to Luis Cervantes, managing director and head of the firm’s Mexico office. Speaking to Private Equity International, Cervantes discusses how the firm plans to back more emerging subsectors in the region.
What’s been the biggest change with investing in LatAm over the past two years?
It has to be the acceleration in the digitalisation of the economies in the region and the opportunities that arise from that. We are at an inflection point for three main reasons: one, the infrastructure needed for digital companies to thrive has finally been built, which wasn’t the case five years ago. But if you look today at the cost of data and smartphone penetration, the last-mile delivery network, the payment system, the anti-fraud core prevention system – finally, the necessary infrastructure has emerged.
Second, it’s the availability of capital, which has led to a boom in entrepreneurship, in venture capital funding, and in investment from global tech companies in Latin America. Finally, it’s the adoption of digital platforms by consumers. All these factors are creating big opportunities for investment.
Has your portfolio been affected by the recent sell-off in global tech stocks?
The main impact is on valuations; we have some public companies whose stocks have adjusted. Other than that, we feel strongly about the resiliency of the portfolio for a couple of reasons. One, the fundamentals remain very strong. If you look at our portfolio in Latin America, companies are still growing. Secondly, our portfolio was able to attract significant capital last year. This means our companies likely don’t need to go out and raise capital over the next two to three years.
To give you an example, last year our global portfolio attracted $20 billion of capital, and 95 percent of that came from third-party investors. Our companies are well capitalised, and they can go [on] the offence, rather than defence, in this new environment.
In Mexico, we anticipate that the majority of our portfolio companies will seek to do acquisitions to grow market share and expand into new areas. We believe this moment is when the big players are born, where industries are transformed, and our companies are taking advantage of that.
What are your priorities for the next few years?
We have 21 companies thus far in the region. The big priority is making sure they execute their growth plans.
The Mexico IPO market is also a priority for us. We have exits in Mexico, but they’ve been through the private markets. We have many IPO exits in Latin America, but they come from companies in Brazil, Uruguay and Argentina. It’s a matter of time for Mexican companies to go public, but we need to prove that point.
There have not been any IPOs in Mexico since 2017. Our companies are well prepared to go public in the future. It’s a big priority to help some of these entrepreneurs go public in the US or in Mexico, and prove that Mexico can be a great source of new public companies as well.
To access more General Atlantic insights, analysis and data, click here