At a conference hosted by the International Finance Corporation and the Emerging Markets Private Equity Association in Washington DC in May, an informal poll of the audience revealed that a majority felt the Andean region of Latin America would provide better opportunities for private equity in the future than Brazil or Mexico.
That’s a reflection of the strong growth and gradual economic reform of the countries in the region, notably Peru, Chile and Colombia. The former in particular has become a significant part of the Latin America private equity story.
In May, Nexus Group, run by Alejandro Ponce, Juan Carlos Vallejo and Peruvian billionaire Carlos Rodriguez-Pastor, announced that it had closed its second fund on its hard-cap of $600 million. This came just two years after the firm closed its debut fund, which raised $320 million in 2011 (MVision worked as placement agent on both funds).
The size of the total raised some eyebrows among a few US-based LPs familiar with the country, whose main question was whether any firm could actually spend $600 million on deals in Peru. Indeed, there was some hesitation from LPs to commit to the fund because of its sheer size, according to one LP familiar with the Nexus offering.
Fundraising in the country has been relatively slow – two funds raised $137 million in 2012, while three funds raised $450 million in 2011, according to the Latin America Venture Capital Association – although that may be changing, judging by the Nexus fund and The Carlyle Group’s recent close on $308 million for its debut Peru fund.
Many managers are targeting Chile, Colombia and Peru for deals, but not necessarily as stand-alone markets; it's much more about the opportunity to build businesses that are pan-Andean and can tap into the larger market of consumers
Cate Ambrose, president and executive director, LAVCA
Dealflow, on the other hand, is picking up, albeit at lower price points. Firms completed 12 deals in 2012 with a total value of about $269 million, compared to two deals worth $373 million in 2011, according to LAVCA.
It’s not just about Peru, says Cate Ambrose, president and executive director of LAVCA. “Many managers are targeting Chile, Colombia and Peru for deals, but not necessarily as stand-alone markets; it’s much more about the opportunity to build businesses that are pan-Andean and can tap into the larger market of consumers,” she told Private Equity International.
But there’s still work to be done. LAVCA ranks countries’ friendliness toward private equity, based on factors like tax, regulation around fund formation, restrictions on local institutions investing in private equity and capital market development.
And while Peru was the biggest climber on the latest scorecard – mostly because of a “long-awaited change” that will allow private equity funds to manage larger shares of the country’s growing pool of pension assets, leading LAVCA to describe Peru as “a capable and serious reformer” – the country only mustered a score of 53 out of 100 (by comparison, the UK scores 96). That leaves it ranked a lowly 8th in Latin America beneath countries like Costa Rica, Colombia, and Trinidad & Tobago.
Like all these Andean countries where burgeoning middle classes are fuelling overall economic growth, Peru may well become a major target of private equity dollars – as long as it continues to follow this path of strengthening its legal safeguards and allowing its capital markets to develop. Particularly if the new Nexus fund is able to prove that the region can not only sustain a sizeable fund, but also deliver the sort of performance that international LPs want.