FoFs start to ripen in LatAm

In March, it emerged that two global fund managers were making good progress investing their debut Latin America funds of funds. PineBridge Investments has already committed $105 million of a $209 million Mexico-focused fund of funds, while Hamilton Lane has invested about one third of a R$150m (€45 million; $64 million) Brazilian vehicle.

“Recognising the opportunity in a timely manner was key for us,” says Alejandro Rodriguez, a director in PineBridge’s Mexico City office, which manages all the firm’s Latin American investments. “If we had done it today, we would have been behind and it would have been too late.”

PineBridge raised its debut fund as a Certificados de Capital de Desarrollo (CKD), a publicly-traded vehicle introduced by Mexican regulators in 2009 to help attract inward investment and to allow the country’s pension funds to start investing in private equity and infrastructure for the first time. Indeed, all the investors in PineBridge’s first CKD – which it has, not unreasonably, called CKD I – are local pensions.

PineBridge CKD I invests in mid-market and growth equity funds that are targeting between $100 million and $300 million, according to Rodriguez. It has invested in five funds so far; it plans to invest in one or two more by the end of the second quarter, and a total of 10 to 12 by March 2015.

Competition in the funds of funds space in Mexico is not exactly fierce. California-based Northgate Capital (which did not return several requests for comment) has a vehicle, but the main player is Corporación Mexicana de Inversiones de Capital, a joint venture by four Mexican development banks, which has been running a programme called simply Fondo de Fondos. It’s currently in market with its Mexico II, which has collected $140 million and will file to become a CKD once it hits its $300 million target.

Fondo de Fondos expects to launch another fund of funds at the end of 2015, even though chief executive officer Felipe Vilá says he expects to see more competition.

In Brazil, there’s even less competition: Hamilton Lane’s HL Brazil is thought to be the sole vehicle of its kind. The firm, has invested about R$56 million in six funds, and is targeting the healthcare, education, natural resources, energy and essential consumer goods sectors, according to a statement.

Rodriguez believes that only Brazil and Mexico have enough market activity to accommodate  country-specific funds of funds.

That said, some GPs have allocated capital from their global fund of funds for Latin America.HarbourVest Partners is investing about $400 million of its $2.9 billion HarbourVest International Private Equity Partners Fund VI to funds in the region, according to Francisco Arboleda, a vice president in the firm’s Bogotá office. And as PEI went to press, StepStone Group said that it had hired two former Paul Capital execs, Duncan Littlejohn and Bruna Riotto, to open an office in São Paulo, its first in Latin America.

Local funds of funds haven’t quite made it to Colombia yet. But development finance institution Bancóldex hopes to be the first mover, so it can help local LPs start getting meaningful access to top managers.

But raising capital for funds of funds in Latin America still requires an “education process”, according to Filipe Cerqueira Caldas, a vice president in Hamilton Lane’s Rio de Janeiro office.

For Hamilton Lane, he says, the main challenges have been that it’s a first-time fund, that it’s the country’s first fund of funds, and that it incorporates new concepts like secondaries and co-investments.

“We had to explain a lot more than we usually do. But there is definitely interest in this type of structure,” says Rodriguez. And that means increasing competition.