What kind of opportunities are you finding in Mexico for your third fund in the country?
The purpose of our funds is to generate value with investments in high growth companies in the country, so the fund has made three commitments to companies based in Mexico. The first investment was to an information technology company, Intellego. Other investments include petrol servicer Diavaz and Grupo CP, which is the largest insurance and reinsurance broker in Mexico. All of our investments are based in Mexico but our companies can have practices in other countries.
How has the local LP community developed in Mexico and were you able to access that capital?
The long-time institutional investors are Fondo De Fondos, which means fund of funds in Spanish, and is an institutional investor backed by Mexican development banks. It has been an LP in private equity funds probably since the late 1990s and it is the most experienced institutional investor in the country.
Castellanos: a local player in the
In addition you have a group of Mexican families that are involved in private equity and have been investing in funds for several years. Those are the two groups of investors that participate in our funds, in addition there is a third group who we did not target—the Mexican pension funds. Those pension funds just started investing in the last five years and they invest through a publicly traded vehicle called CKD. Certificados de Capital de Desarrollo is a structure where pension funds can invest and private equity funds can be raised.
I would say that 40 percent of the commitments for our third pool of capital came from investors who participated in Fund II and 60 percent of the commitments came from new LPs. The most important group for us is Mexican family offices.
What are the attractive sectors in Mexico?
We don’t have a sector focus; however, what we have in the portfolio is totally in line with the sectors that will grow in Mexico. Throughout the region, but specifically in Mexico, the energy sector is developing. The government is preparing a set of structural energy reforms that will be presented in front of congress. With this, the opportunities for the private sector to capture value will increase significantly after the reform, which will take place before the end of the year. I think most of the private equity players here share this view, but given that the number of companies in the sector is limited, very few have been able to close deals in the energy sector.
What sets Mexico apart from the rest of Latin America?
The private equity industry has a very low presence here compared to other countries. Private equity investments in Mexico represent or have represented in recent years between 0.15 percent and 0.2 percent of the gross domestic product, which is a very low figure. For many countries you see this figure is around 1 percent; in countries like the US it is significantly higher. The private equity space in Mexico is not fully covered; there are only a few players and investments in the country.
So you have less competition, so the opportunities are more attractive. Second, as a group we play as locals. There is a big difference playing as a local rather than playing as a foreigner. Here, we know people, we know how things work and we know the culture.