According to Preqin’s Investor Intelligence database, 478 global investors currently show a preference for investing in South America. These investors have aggregate assets under management of approximately $16tn and an average current allocation to private equity of 13%. North America-based investors account for 51% of these investors, as shown in the chart below, while Europe-based LPs account for 24%, with domestic investors making up approximately 14%.
Although South America is made up of 12 countries, the majority (53%) of investors with exposure to private equity funds in the region have previously invested in opportunities in Brazil. This is somewhat unsurprising given Brazil’s size, economic growth potential and natural resource holdings, which make it an attractive investment prospect. Following Brazil, Argentina and Chile are the countries in which LPs have previously preferred to invest; 17% and 15% of investors have invested in Argentina and Chile respectively.
An example of an LP seeking South America-focused investment opportunities is Brazil-based public pension fund FAPES Assistance and Social Security Fund (FAPES). FAPES anticipates investing in two new private equity funds over the next 12 months. It is targeting natural resources and fund of funds vehicles based in Brazil and will invest approximately $13mn per fund. The pension fund is interested in working with existing managers as well as forming new GP relationships. FAPES currently only makes private equity investments in Brazil, confident that there are plenty of good opportunities with local managers.
According to Preqin’s latest investor survey, conducted in June 2015, when asked what areas within emerging markets are presenting the best opportunities in private equity, only 4% of respondents cited South America, and similarly, just 4% named Brazil. Despite these results, economic growth potential, an improving political landscape and a range of economic reforms seen across the continent could see an increase in LP appetite for the region in the future.