In an historic moment for US-Cuba relations, President Obama has announced that he will remove Cuba from a list of state sponsors of terrorism. This is the latest move in a series of steps to resume diplomatic ties between the two countries, and has positive implications for private equity fund managers focusing on the region. The move could lead to the lifting of the economic sanctions currently in place, allowing the island to take advantage of its proximity to the US. An increase in the number of investments in Cuba could also refocus attention towards other Caribbean islands.
Preqin’s Fund Manager Profiles online service shows there are currently 34 private equity fund managers that include the Caribbean as part of a wider geographic investment focus. Together, these firms have raised $15.7bn via private equity funds over the last decade and have an estimated $8.7bn in dry powder. A breakdown by investment strategy shows that over half of these GPs (53%) make venture capital investments across a range of stages. The predominance of venture capital among these fund managers may reflect the opportunities to be found in the increasing number of small businesses established in the Caribbean, but also represents a way for GPs to diversify their portfolios in order to alleviate risk when investing in a region that is still developing.
Several fund managers also diversify their portfolio by including the Caribbean alongside other investment destinations, rather than having an exclusive focus on the region. Currently, 91% of fund managers which include the Caribbean in their investment preferences invest in other regions as well. Only three fund managers solely invest in the Caribbean, the largest being Barbados Entrepreneurs Venture Capital Fund, followed by Thomas J. Herzfeld Advisors and the Eastern Caribbean Central Bank, with all three funds following venture capital strategies.
At present, the number of fund managers that focus exclusively on the Caribbean is low, but there are several more that consider investing in the region as part of a diversified portfolio. For Cuba, the Communist policies of the government remain an outstanding difficulty; while the country has permitted the establishment of some private businesses, the restrictions mean it will continue to face challenges in attracting capital. Change is likely to be gradual, but the recent Obama announcement has made the region one to watch nonetheless.