Private equity has gained a foothold in Peru.
Compass Group has raised the third and largest domestic private equity fund to date in the country with $55 million (€35.5 million) under management so far, and a hard cap of $100 million.
When Peruvian pension funds began investing in funds launched by Enfoca and SEAF (Small Enterprise Assistance Fund), Compass Group saw an opportunity to jump on the bandwagon, according to managing director Francisco Moreya.
Peruvian pension funds have accepted the need to diversify, says Moreya. However, regulations require that domestic pension funds invest only in Peru and prohibit direct investment.
The entirety of Compass' capital under management was contributed by Peru's four private pension organisations.
The fund's mandate is quite broad.“ We can invest in all of the sectors that we think are interesting,” says Moreya, citing infrastructure as one of these. Other attractive areas include retail and construction, which has seen a growth rate of approximately 15 percent over the last year.
The initial goal is to invest $10 million to $25 million per deal, resulting in three or four transactions over the course of three to four years. Diversification will be low due to the limited market opportunity at present, said Moreya.
“We look forward to achieving control. However, when we feel comfortable with our potential partners, we can consider doing investments in minority positions,” said Moreya, adding that exits can be more difficult in minority investments.
In terms of exit potential, strategic players are “number one across the board”, according to Moreya. The Lima Stock Exchange is an alternative only for reasonably large companies.
Still in its formative stages, the success of private equity in Peru remains to be seen.
“The owners of potential targets are still not well acquainted with the characteristics of these types of investments and the benefits they may bring to companies,” says Moreya, who spends significant time educating business owners on the asset class.
INTERGEN TACKS ON MEXICAN ENERGY FACILITY
InterGen, a global power generation company jointly owned by the Ontario Teachers' Pension Plan and Indian infrastructure developer GMR Infrastructure, has agreed to acquire the Libramiento natural gas compression facility and associated pipeline for $88 million (€56 million) from Latin America-focussed private equity firm Conduit Capital Partners. GMR recently bought its 50 percent stake in InterGen from AIG Highstar. Libramiento is adjacent to the InterGen-owned Compresión Bajio Project in northern Mexico. The Libramiento facility is fully contracted for 20 years with Mexico's state-owned petroleum company PEMEX. Conduit targets the independent electric power and energy industry in Latin America and the Caribbean and is presently investing its $393 million third fund.
NEXXUS CAPITAL CLOSES FUND III
Mexico-based private equity firm Nexxus Capital has closed its third private equity fund with total commitments of $144 million (€92 million), short of its $250 million target. The fund will invest at least 80 percent in Mexico-based companies and the other 20 percent in companies in neighbouring countries with links to Mexico. It will concentrate on both growth capital and buyout opportunities. The fund has made two investments to date in Mexican consumer financing company Crédito Real and Harmon Hall Holding, a private education provider of English language training in Mexico.
PE HAMPERED BY REGULATIONS, CULTURE
As M&A activity in Latin America booms, the regulatory environment and resistance to relinquishing management control top the list of challenges confronting private equity. According to a recent Latin American M&A survey of investment bankers, private equity practitioners and corporate executives by data firm Mergermarket, 63 percent of respondents named the regulatory environment as the principal obstacle to private equity in the region. The second-most cited obstacle for private equity, identified by 57 percent of respondents, was resistance to handing over management control to outsiders. “Such aversion is especially prevalent in smaller economies, where many targets continue to be closely held by family groups with several generations of historical family participation in management,” according to the report.
SOCIAL NETWORK RAISES $4.3M
London-based venture capital firm DN Capital has led a $4.3 million (€2.7 million) Series A financing round for Latin American social network Sonico.com. DN Capital was joined by several private investors. Sonico will use the capital to launch new product enhancements, strengthen infrastructure and recruit talent. The company will also increase its presence in all Spanish- and Portuguese-speaking markets. DN Capital invests in software and digital media companies targeting the enterprise, internet and wireless sectors.
BRAZILIAN ASSET MANAGER ARRESTED
Daniel Dantas has been arrested on charges of leading a criminal organisation which committed crimes including money laundering, tax evasion and racketeering to embezzle public funds. Dantas founded Brazilian fund management firm Opportunity Asset Management in 1994. He then created the largest private equity fund in Brazil with $728 million under management through a joint venture with Citigroup's Citicorp Venture Capital in 1997. After a long string of legal conflicts with Citigroup, Opportunity Asset Management employees, limited partners and coinvestment partners, Dantas was fired for mismanagement in 2005. He is now accused of using the fund and fictitious companies to launder money and thwart tax collectors.
IFC BOOSTS REGIONAL INFRASTRUCTURE
The International Finance Corporation (IFC), a unit of the World Bank Group, has agreed to provide $20 million (€12.8 million) of debt and $9.9 million of equity to Corporación Interamericana para el Financiamiento de Infraestructura (CIFI). CIFI is a financial institution that funds small-and mid-size infrastructure projects in Latin America and the Caribbean. The investment will boost access to finance for future infrastructure projects in the region. The IFC, which will acquire existing shares from shareholders, is joined by a number of other institutions that will provide additional debt totaling $48.5 million.
CARLYLE MEXICO SELLS TO CARLYLE JOINT VENTURE
Apollo Global, a company partially owned by the Carlyle Group, has purchased a 65 percent stake in Carlyle Mexico Partners-owned Universidad Latinoamericana at an implied enterprise value of $47 million (€30.3 million) . Carlyle Mexico Partners, a $134 million private equity fund managed by The Carlyle Group, initially acquired a majority stake in Universidad Latinoamericana in 2005 for an undisclosed amount and will retain 35 percent ownership of the Mexican university. Apollo Global was created in October 2007 and is 80.1 percent owned by for-profit education company Apollo Group, with the remaining 19.9 percent owned by Carlyle's $605 million Carlyle Venture Partners III fund.
GAVEA CLOSES ON $1.2 BN FOR BRAZIL
Gavea Investimentos, the Rio de Janeiro-based investment firm founded in 2003, has closed its third fund, rounding up a total of roughly $1.2 billion (€775 million) for private equity and other illiquid investments in Brazil. With the recent fund close, the illiquid strategies group now has $2.7 billion under management, making Gavea among the biggest private equity players in Latin America. Gavea's illiquid strategy includes the ability to do both traditional private equity deals as well as private investments in public entities (PIPEs) . Gavea raised the bulk of its capital commitments for Fund III from US endowments and other institutions. US endowment Harvard Management Company owns a 12.5 percent stake in Gavea's management company.