Private equity is heating up in Latin America.
As a way to beef up returns, non-Latin American investors and consultants increasingly are interested in investing their private equity dollars in Latin America.
Global private equity firms such as The Carlyle Group are making investments in the region, especially in Brazil. According to the Emerging Markets Private Equity Association, much of the $4.5 billion in emerging markets private equity investments in the first half of this year came from an investment surge in Latin America. And that is likely to continue: A recent private equity investor survey by Coller Capital and the Washington-based EMPEA revealed 37% of respondents expect to increase or add private equity investments in Brazil.
Indeed, the Coller/EMPEA survey revealed that investors expect greater returns from emerging market private equity investments than from their global funds.
Steven J. Cowan, managing director of consulting at PCGI LLC, a Washington-based private equity emerging markets funds-of-funds manager, said the firm has been quite active in Latin America since its founding in 2005 and has seen a dramatic increase in investor interest in the region this year.
One of the larger private equity funds that closed this year was Advent International's $1.65 billion Latin American Private Equity Fund V. Among investors in that fund is the $46.7 billion Pennsylvania State Employees' Retirement System, Harrisburg.
Advent started raising its fifth Latin America fund after the start of the financial crisis in December 2008, with more than $1 billion of the commitments collected at the end of 2009 and the early part of this year, said Ernest Bachrach, managing partner and co-head of Latin America for Advent International in a May presentation for the Latin American Venture Capital Association. The fund ended up exceeding its $1.5 billion target. Most of the capital was raised from existing investors from prior Latin America funds but there were a number of new investors including, for the first time, a Latin American pension fund.
Private equity investors are investing in emerging markets looking for high growth areas with the potential of higher returns. They began with the largest, China, and then migrated to India and then Latin America.
Investor interest “started with the realization that it would be increasingly challenging to generate the kinds of returns investors are looking for in the private equity asset class in the G-7 countries given the slow growth and increasingly higher levels of debt in those economies,” Mr. Cowan said. PCGI currently invests between 20% to 30% of its private equity portfolio in Latin America.
Patrick McElligott, chair of the Washington State Investment Board and a member of the private markets committee member — speaking at the Pension Bridge Conference in Chicago on July 26 — said officials at the $52.6 billion pension fund are very interested in investing in emerging markets private equity.
Private equity opportunities in emerging markets were discussed at the board's retreat July 13-15, said Liz Mendizabal, spokeswoman. The board's last emerging markets private equity investment was a $25 million commitment to CDH IV, a China-focused private equity fund, she said. But she declined to speak about possible future investments. The Canada Pension Plan not only committed up to C$100 million (US$98.5 million) to Multiple Alternate Asset Management's International Fund, but also has been investing directly in Latin America, both in real estate and private equity.