Mexico PE benefits from Brazilian recession

The developing Mexican private equity market is currently the hot spot for Latam investments, but the path to a more mature market is not without hurdles.

Mexico is coming out as the new sweet spot of private equity in Latin America, as commodities-driven countries in the region such as Brazil are struggling in the midst of recession, said panelists at the Mexico PE Day in New York conference on Thursday.

“LPs looking for exposure to Latin America are going over to Mexico, because they have seen a more stable macro environment, solid growth and overall improvement,” said Jennifer McLeod Petrini, senior investment officer of private equity funds at International Finance Corporation . “I think that it looks like a more attractive market compared to some others in the region. The question would be whether that allocation is going to be Mexico-only funds or regional funds. We'll see about that, but it could be that there's some spillover interest, due to the state of the markets in Brazil at the moment.”

Panelists at the conference agreed with Petrini that of the main Latin American countries for private equity, investment interest in Brazil, Chile and Venezuela has declined, while interest in Mexico, as well as Columbia, has increased. The Mexican private equity market is particularly strong in infrastructure and energy.

Given the nascent stage of the market, few general partners have launched Mexico-dedicated funds as they are still uncertainties and returns still remain to be seen because there have been so few portfolio exits. 

“We do think that there's a reasonable number of quality GPs out there but most of them, with exception of a few, have short track records, typically in small teams. Very few of the managers have exits so far and that's a concern when you're trying to have a self-funded private equity program,” said Carlos Rangel, director of investments and risk management at the W.K. Kellogg Foundation .

AlpInvest Partners ' private equity exposure in Mexico is pan-Latin American, which includes a presence in the country. The firm is also awaiting more clarity on returns to potentially up its commitments to Mexico. “As we think about reviewing and increasing our commitments, a lot of it is tied to returns of the capital and being able to prove that to our investors,” said Sid Murdeshwar, a principal at the firm.