Emerging markets LatAm: what do secondaries need for take off?

Secondaries specialists Lexington Partners and Pantheon Ventures both have offices on the continent, but the Latin American market has not been especially active. This is hardly surprising given the relative immaturity of the primary market, but this might not be the case for long.

Crisis-era fund lives are becoming longer, just as in the US and Europe, exacerbated in Latin America by high exchange rate volatility. Many GPs need more time to grow their assets and many LPs want liquidity, creating the perfect conditions for restructurings.

In September, sister publication Secondaries Investor revealed Enfoca Sociedad Administradora de Fondos de Inversión, a Peruvian private equity firm with $700 million under management, would carry out GP-led processes on two of its funds, including its 2007-vintage, 693 million Peruvian soles ($213.7 million; €181.7 million) Enfoca Descrubidor 1. The aim was reportedly to “give more runway to investors” which wanted to stay and offer an out for the others.

At the time of writing, PEI understands three investors have been chosen to buy the stakes of selling LPs, including two big-name secondaries buyers. Other restructurings are also under consideration by private equity firms in Mexico and Brazil.

Does Enfoca signify the start of a trend? Perhaps not. According to one source with a LatAm focus, international secondaries players see many assets on the continent as overpriced given their associated risk. Exchange rates are volatile and there is a short, patchy history of successful exits.

Regional LPs haven’t shown the willingness to sell for less money, which is unsurprising given the LP base is mostly development banks and pension funds, with long-term horizons.

“A lot of people are open to these things,” says Álvaro González, Latin America head at Spanish primary and secondaries investor Altamar Capital. “Do I expect most of these to close? My answer would be no. I think that almost 90 percent will not go through… In order to have an active and liquid secondary market you need to have a large primary market and that’s not the case in LatAm yet.”