Latin American Fundraising: Who Are the New Contenders? - September 2014

by Kathryn Sharpe

  • 17 Sep 2014
  • PE

Brazil has traditionally been regarded by investors as the powerhouse of Latin American fundraising. With uncertainty looming ahead of the upcoming October presidential elections and suggestions that the country is beginning to undergo another technical recession, could it be that this once historical sweet spot is now turning sour? 

Brazil has typically been favoured over other Latin American countries for investment opportunities because of its more developed private equity market. According to Preqin’s Fund Manager Profiles online service, Brazil-based private equity fund managers make up 46% of the 200 firms based in the region. These managers have also consistently enjoyed a leading position in fundraising as Brazil is the country with the highest sum of total funds raised in the last 10 years, with $21.8bn accumulated and an estimated $9.7bn available in dry powder. 

Despite painting a promising picture, the country’s fortune nevertheless appears to be waning.  Since 2011 there has been a steady decline in the number of funds focusing on Brazil. The 2011 peak of 23 funds completing a final close on $12.7bn has slumped to a low of six funds gathering $2.3bn in 2014 YTD. ‘Custo Brasil,’ a term that describes the current barriers to business which include but are not limited to rising interest rates and weak economic growth, could be one contributory factor. This, combined with recent election jitters, has created uncertainty regarding Brazil’s economic direction for the next four years, making many fund managers consider previously overlooked countries for investment. 

Countries including Mexico, Peru and Colombia are gradually emerging as viable investment alternatives to Brazil. Mexico in particular currently appears to be a leading candidate; 2014 YTD has seen $1bn raised in aggregate capital commitments by Mexico-focused funds - an increase from the $750mn raised in 2013. 

Preqin’s Funds in Market online service shows that while Brazil-focused funds have suffered from a reduction in capital raised each year since 2011, vehicles focused on investing across the rest of the region have witnessed a steady boost in capital. At present, Latin America-focused funds investing primarily outside Brazil have raised an aggregate of $2.2bn so far this year, close to the figure accumulated by Brazil-focused funds, which stands at $2.3bn. 

Brazil-focused funds in market are currently seeking $10.7bn compared to the $12bn targeted by funds considering investments primarily across the rest of the Latin America region. Of the 54 funds seeking investment opportunities that primarily exclude Brazil, 63% chose to diversify their portfolio by considering a variety of countries. This strategy reduces the risk of all investments in the fund being susceptible to the economic environment of one country, and is proving to be an increasingly popular method for investors looking to access the region. 

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