LatAm PE: the importance of diversification

Marco Peschiera, managing director and head of the Peru advising team at Carlyle, explains to Marine Cole why diversifying among Latin American countries is central to a sound strategy for the region.

The Carlyle Group closed its first fund dedicated to Peru, Carlyle Peru Fund – which also focuses to a lesser extent on Chile and Colombia – on $308 million in March 2013, at a time when the market in Latin America was more attractive than today given the growth prospects of the region at the time. Since then, Carlyle has made six investments in the region and is currently considering its next fundraising move there.

How has the market evolved in the region since Carlyle raised its first fund there?

In 2012 and 2013 it was very competitive; there was too much money chasing too few assets. It was expensive. The structures were not optimal and on top of that, many of the currencies were higher than they are today.

Fast forward to 2017 and you don’t have so many GPs trying to get into the market, the local funds are not that active and the strategics are a lot more careful. This is part of the slowdown in Latin America in general, including in Peru. Now we’re finding a little more of the right companies at the right price with the right structure as opposed to what we were getting in 2012-14. We had to wait almost a year and a half after our closing to make our first investment. We were opening a new office and all stakeholders wanted activity but we had the discipline to wait and I think it paid off. The LPs now value that.

What’s attractive about your strategy?

The concept from the get-go was to do a Peruvian-focused fund, however with a percentage, about 30 percent, to be invested in Chile and Colombia.
The economies in Latin America are relatively small and the opportunities in each country on a standalone basis are relatively scarce. Even in the few countries that have the depth to do stand-alone private equity, like for example Brazil or Mexico, it’s important to diversify the political and economic risks. I think GPs now are looking a little more at Latin America as a platform. A regional fund doesn’t have to consider all of South America. You can cherry pick your sub-region.

The flexibility of being able to be local but at the same time look and diversify into two other similar countries makes us attractive compared with the benchmark, and at the same time it increases our negotiating leverage given the larger universe of opportunities in other similar markets.

What’s next for Carlyle in Latin America?

About 75 percent of the fund is invested. We are looking at deals right now in Chile and Peru. We will then determine the format of our future Peru, Colombia, Chile and Latin America fundraising activities based on how we see future opportunities on a sub-regional and regional basis from our offices in Lima and São Paulo. A new CPF might be more balanced among the three countries, Colombia, Peru and Chile and who knows leave the door to invest in Argentinian in case Argentina turns the corner.

Based in Lima, Peschiera opened the South America office for Carlyle in 2012. He previously served for Citigroup Global Markets in New York as managing director and head of Latin America Diversified Industrials. Carlyle also has a presence in Brazil.