Report: Greater Interest Among Private Equity Funds in Latin America

(July 18, 2011) — New statistics released by Emerging Markets Private Equity Association (EMPEA) reveal that greater interest in Latin America among private equity and venture capital funds is fueling investment potential in the region.

According to the statistics released by EMPEA, 2010 saw private equity activity in the emerging markets rebound from a slower 2009. The study showed that pension funds in Latin America have had a longer history of private equity investment than many emerging markets, with Brazil, for example, leading the charge on corporate pension fund participation in private equity.

The report concluded that Latin America has become one of the most favored regions for private equity investment and fundraising. Investment in the region surged from $1.3 billion in 2009 to $6.6 billion in 2010. “Developments in Latin America could potentially be a harbinger of things to come in other markets, such as Asia and Africa, which we will examine through future EMPEA research initiatives,” it said.

Two regulatory changes are facilitating investment into private equity: pension fund reform and greater regulatory clarity. The research stated: “Beginning with Chile’s successful pension reform in 1980, which privatized pension fund management, countries throughout the region have shifted to privatize pension fund systems. Four of the countries profiled in this report— Colombia, Peru, Mexico and Chile—have established mandatory defined contribution individual retirement plans. While many of Brazil’s pension fund administrators offer defined contribution plans, several occupational pension plans still offer defined benefit options.”

Asia has also proven to be a hub of private equity interest. A recent study by Preqin showed that the top 10 private equity firms have increased their investment in Asia significantly over the past three years at the expense of North America-focused investment.

“We’ve seen a change from the 2006/2007 boom era when North American investments were the prime focus for the major private equity firms, but since the 2008 financial crisis, we’ve seen private equity firms looking to new markets for better returns,” Manuel Carvalho, Preqin’s manager of private equity deals, told aiCIO. “Institutional investors need to care where capital is going, and they should keep a close eye on investments by region.”

In terms of fundraising, Preqin’s research found that the top 10 private equity firms account for 18.6%, or $425.7 billion, out of a total of $2.3 trillion in private equity capital raised in the past 10 years. With regards to deals, the study showed 75% of deals were North America-focused in 2006/2007. The region now accounts for 60%. Asia accounted for 5% of deals completed in 2006/2007. In 2011, that percentage is now 23%.

While Asia is becoming a more important region for attracting private equity capital, Carvalho told aiCIO that North America will continue to be the primary region for private equity in the foreseeable future.