According to the LP Perspectives 2021 Study, 4 percent and 51 percent of investors expect their interest in Latin America to increase or remain the same over the next 12 months, respectively; what opportunities does IFC see in the region over the year ahead?
As the largest global development finance institution and as a member of the World Bank Group, IFC is investing with a focus on both financial returns and development impact. We are a long-term investor and in these unprecedented times our equity capital is more needed than ever. IFC has proven the case for staying the course through crises, and we set a recent record for commitments to funds, co-investments and portfolio company financings in the last 12 months with commitments over $100 million to Latin America. In the year ahead, we are expecting a decline in overall fundraising, but for our programme, we think venture capital has been a more resilient sector where we see a steadier investment pace and fundraising activity.
Are there any markets or sectors of particular interest in Latin America?
IFC invests across Latin America. While larger markets such as Mexico, Brazil and Colombia often do present more opportunities, we actively seek out those in smaller markets, for example in Central America and the Caribbean. There, our investment can have the most impact to boost private sector growth and lead to our ultimate goal of alleviating poverty. These proposals come with less frequency, but as a matter of fact, we are in the process of committing to a Central American fund managed by CASEIF. At the same time, we are working through direct investments to take some businesses (with additional capital) from one country to regional, for example with bike-sharing company Tembici in Brazil.
What does IFC look for when committing to Latin America-focused funds?
The fund managers we like to work with in Latin America are local teams that provide businesses not just with capital, but also with strategic and operational know-how. Our primary strategy is on mid-market growth funds, which is where we see the highest development impact and the best returns. An area we are spending a lot of time working with these partners at the moment is through co-investments, and we recently co-invested with L Catterton in Despegar.com, one of the leading online travel agencies serving Latin America. As tech investing and VC have grown in Latin America in the last few years, we have also been actively building up our VC funds exposure, and while we have been highly selective, we are building some excellent partnerships in this space.
Over half of study respondents are more or just as likely to invest in first-time fund managers in the next year; what are the key considerations for IFC when investing in first-time funds?
Over the past four years, around 25 percent of our fund investments have been with first-time fund managers. IFC has been investing in funds since the 1990s and we have incorporated many of the early lessons learned in our decision-making process. Our experience has shown that some of the best opportunities come from motivated teams who are spinning out or have a blend of team experience ranging from PE investing to operational backgrounds. Much of our focus during due diligence with first-time funds will be focused on if there is a clear investment strategy, good team dynamics, fund management experience and alignment of interest.