The picture of private equity in Latin America in recent years has undergone significant shifts, but there has been some debate on whether the private equity space is actually expanding or diminishing in the region.
Preqin’s Funds in Market data shows that 2013 was a relatively poor year for private equity fundraising in Latin America. Twenty-four funds primarily focused on investment opportunities in the region raised a total $6.1bn, compared to $8.8bn in 2012 and down from $16.7bn in 2011. 2013 was the worst year for Latin America-focused fundraising since 2009, even lower than both 2008 and 2007 figures. Furthermore, the number of funds raised was the lowest since 2005.
The industry has seen a growing trend for more private equity investments focusing on opportunities outside of Brazil. Historically, Brazil has been the main investment destination of private equity funds in recent years. For example, in 2011, funds with a specific country focus on Brazil raised 79% of the total capital accumulated that year. The next highest proportion of capital garnered that year was raised by funds with a general focus on the wider Latin American region (10% of the total capital raised). In recent years, however, private equity fundraising has seen a continued shift in distribution of capital away from a crowded Brazilian market towards less developed countries with the potential for stronger economic growth and improving regulatory environments. In 2013, Brazilian-focused fundraising accounted for just over 50% of the total capital raised, with other areas including Peru (16%) and Central America (15% including Mexico) attracting increasing investments. Other countries including Colombia and Chile also had their best year in 2013 for many years in terms of private equity fundraising.
In 2014 there is some expectation that there will be further geographic diversification and a recovery in the total capital raised to invest in Latin America. Data from Preqin’s Funds in Market shows that there are currently 90 funds in market seeking third party capital commitments, targeting over $22bn in total. While the majority (52%) of funds seeking capital have an eye for investing in Brazil, there is evidence of an increasing trend favouring investments in other countries in the region, with Central America performing particularly strongly once more. There are nine funds currently in market intending to invest in opportunities in Colombia, which, if they reached final close in 2014, would be the largest number of funds on record closed in a year planning to invest in the country.