You recently closed a $10.4 billion global fund and $1.3 billion Latin American fund – do they co-invest together?
They can. Some of the transactions that we're looking at in Latin America are quite large and have similar characteristics to what the global fund might also consider: more mature companies, a greater proportion of international business.
What's happened in the last 24 months is that our average deal size has gone up from an enterprise value of about $75 million to about $300 million, so we're syndicating almost every deal we have in Latin America.
For example, two years ago we bought the largest private bank in Uruguay [Nuevo Banco Comercial] in a deal requiring over $100 million in equity. This was before we had our $1.3 billion Latin American fund [LAPEF IV], so we syndicated that investment with the development banks of Germany and the Netherlands, as well as Morgan Stanley Alternative Investment Partners. That's very common to the way we do private equity in Latin America: we bring in co-investors who enhance our ability to add value to portfolio companies through their industry expertise or international reputation.
How much of the $1.3 billion fund closed last year has been deployed?
The pace of our activity is probably twice as fast as we anticipated, so we could well be beyond half invested in 2008.
What is behind the rapid deal pace and deal size increase?
The fact is that the economy is booming in Brazil; Mexico is doing pretty well; and we're looking at opportunities in the Caribbean as well as elsewhere.
Do you compare notes with Advent partners based in Western markets? Obviously it's a role reversal given current market conditions affecting more developed private equity markets.
It's a total role reversal from the past. If you look at, for example, Brazil, the buyout market is growing because the vacuum left by the international banks is being taken up by the local Brazilian banks. The stock market suffered a bit but is now starting to pick up again for IPOs in Brazil. The hedge funds, which started getting very adventurous in Latin America, have pulled back, so that's left a lot of room for the very few private equity firms that are active in Latin America.
With Brazil being the biggest economy, is that proportionate to where you've been deploying your fund?
It is starting to be. It was Mexico before, [but] Brazil is starting to pick up pretty substantially.
How does the global Advent family share economics across funds and across regions? Does the Central European team benefit from the success of Latin America?
Yes. Basically it's divided into three parts. There's a portion that goes across the partnership, so all investment professionals participate in the success of Advent's funds globally. Then there's two almost equal parts, divided between fixed carry and performance-based carry. So everybody participates in all deals within a region, and then individuals are rewarded for the success of their specific deals.
How is Advent's structure unique from other firms?
By private equity standards, it's a relatively flat organisation. We don't have a CEO, it's run by the managing partners. And that trickles down to the rest of the organisation. For example, my investment committee in Latin America is composed of all the professional staff – so when a new analyst joins us, he comes to the investment committee. Because it's an apprenticeship business, you want these younger professionals to hear how we think through companies' issues and problems, and they all play a role. This approach maintains intellectual integrity, and there's never a ‘right answer’ on a deal anyway; it's a subjective process where you strive to reach a good consensus decision.
In Latin America to me it was very important [to maintain this group approach] because there's a lot of different cultures, new territory, it's easy to trip up and there is no existing population of experienced private equity professionals. So the only way to build the organisation is to develop professionals in-house, and the best way to do that is to have people participate in everything that's going on.