This week there has been good news for both Brazil and Mexico. Regulatory change in Brazil has allowed private equity firms to sell shares or convertible bonds of companies in their portfolios, which should attract more investors to their offerings. It has also been detailed in the media this week that the Mexican economy is expected to grow at a much higher rate than it did in 2013. This is indicative of recent economic successes and its emergence as a serious contender to Brazil’s dominance over the Latin American private equity market.
Preqin’s Fund Manager Profiles online service shows that there are 91 private equity fund managers based in Brazil, with a further 32 headquartered in Mexico. Together, these two countries make a larger proportion of the Latin American private equity industry than the rest of Latin America combined, where there are only a further 73 managers. In terms of funds raised in the last 10 years, Brazil-based private equity firms have performed far better than others in the region, having raised $23.1bn in total capital commitments over the last decade, compared to $2.9bn collected by Mexico-based private equity firms. In fact, even though Mexico has nearly twice as many private equity firms as Argentina (17), firms based in Argentina have raised more capital ($4.1bn) in the last 10 years.
The average amount of capital raised by Brazil-based private equity firms is also considerably higher than that of their Mexican counterparts, with $607mn per fund raised compared to $195mn over the last 10 years, respectively. Nine of the top 10 fund managers, based on the total amount of capital raised in the last decade, are based in Brazil, demonstrating the maturity of the Brazilian private equity industry. The number one firm is Caixa Econômica Federal, which raised $4bn from its current fund in market, FIP Sondas, which targets investment opportunities in the Brazilian oil & gas industry. Furthermore, it also has $2.6bn in estimated dry powder to be invested.
The second largest firm in terms of aggregate capital raised over the last 10 years is Gávea Investimentos. The asset management company was founded in 2003 by Arminio Fraga Neto, the former president of Brazil's Central Bank, and has raised $3.8bn, with a further $400mn in estimated uncalled capital commitments.
Nexxus Capital is the biggest private equity firm based in Mexico, with $800mn collected since 2004. Its latest fund, Nexxus Capital Private Equity Fund VI, closed in November 2013 on $550mn, and is a growth vehicle investing in middle-market companies exclusively in Mexico.
Overall, it is evident that Brazil remains the largest player in Latin American private equity. However, with growth in the BRIC nations slowing, there could be a change in the flow of capital towards Mexico, as investors seek outsized returns in an emerging market.