Latin locals source funds for global giants

One of the most exciting regions for private equity managers is Latin America, where the economies in countries like Brazil are growing strongly and regulatory environments are becoming ever friendlier to private investment.

However, one aspect of private equity that remains underdeveloped in the region is fundraising, especially fundraising for managers that invest outside Latin America.

Predictably, each country has its own rules governing the ability of domestic institutions to invest in private equity, including offshore private equity funds. For international managers, understanding the intricacies of each country framework can be hard work, which is probably why two of the world’s largest private equity groups have chosen to partner with local operators who know the territories in question already. 

One is The Blackstone Group, which is raising its sixth buyout fund and has collected about $14 billion in commitments already.  In Latin America, the firm’s fundraisers have been in the region meeting potential LPs and trying to form relationships. Park Hill Group, Blackstone’s placement agent affiliate, has helped make some of these connections recently.

In Chile, the firm is working with a brokerage firm called Larrain Vial. The firm has been raising a $700 million fund called Larrain Vial-BCP VI, according to documents filed with Chilean ratings agency Feller Rate. The structure appears to be similar to the kind of feeder fund structure that investment banks use to raise from among wealthy clients. Prior media reports estimated the fund had raised $250 million by May last year.

The Larrain Vial fund is collecting commitments from institutions and individuals from around Latin American, not just Chile. Through this structure, Blackstone is getting capital from the region without having to worry about navigating the myriad rules governing commitments in various countries. This is progress for Blackstone as it didn’t have any Latin American LPs in its fifth private equity fund, which closed on $21.7 billion in 2007.

Another mega player raising fresh capital this year is Kohlberg Kravis Roberts, which is also working with a Chilean asset manager. Celfin Capital has a fund to co-invest alongside KKR’s $20 billion 2006 fund and commit capital to the firm’s 11th North American fund, which is targeting between $8 billion and $10 billion. The Celfin fund channels commitments from Chilean pension funds into a KKR entity called the Master Fund, which was launched in May 2010 with total commitments of $185 million.

The Master Fund has made several co-investments in KKR-sponsored energy investments, giving the Chilean pensions involved in the fund exposure to the firm’s energy–related investments. For example, the Master Fund has co-invested in the partnership between KKR and Hilcorp Energy Company to acquire and develop oil and gas producing properties in the Eagle Ford shale property in Texas, according to Celfin’s 2010 annual report.

These early steps in Latin America’s private equity fundraising development could set the course for regional institutions to become limited partners in offshore funds. If the Blackstone- and KKR-connected vehicles deliver results back to its investors, more investors in Latin America are likely to seek access to similar projects in the future.