Latin America – a capital-intense market that offers a vast amount of capital-like opportunities for GPs and an eager base of LPs searching for regional and overseas investments

Latin American non-financial corporations’ debt-securities issues and amounts outstanding by Q2 2018 are estimated at USD 779 billion1, the vast majority of which are long-term debt issuances, with 41% issued internationally. The most successful recent Latin American company IPOs, the Arco Educação platform (ARCE, Nasdaq) and NotreDame  Intermédica (GNDI3, B3), provided their backed PE houses with an opportunity for realised profits without fully exiting from their investments. Additionally, we are currently seeing a growing demand from Latin American family offices and pension funds for alternative investments, setting a very positive scene for both d0mestic and international private equity  houses to foster growth in the Latin America (LATAM) region.

Entry valuations are seen as very attractive in LATAM by most domestic and international LPs with current exposure in the region. In particular, Brazil’s EV/EBITDA of 7.3x (in 2017) offers a favourable negotiating position when compared to the US (10.5x) and Asia (14.1x). Among the emerging economies, LATAM is seen as a preferred destination, second only to China and ahead of south-east Asia and India. This is mostly driven by its favourable entry-valuation conditions. In contrast, the same community of LPs see currency volatility and the regulatory and tax environment as significant challenges to consider when investing in the region.

While quantitative easing in Europe and the United States has increased the appetite for international debt issuance, currency volatility and tightening domestic long-term credit have created an opportunity for an additional source of funding. LATAM companies have turned to private equity funds, seeking fresh capital in the form of equity investments and mezzanine financing in order to finance working capital, expansion plans and acquisitions.

According to the 2017/ 2018 Latin American Private Equity and Venture Capital Association (LAVCA) Scorecard, the commitment to developing a domestic private equity and venture capital industry remains strong. However, institutional investors pursuing direct investments, such as Canadian pension plans and sovereign wealth funds, have significantly increased their direct investments in Latin America’s major markets.

Managing regionally but acting locally: Latin America’s top PE markets

Chile, Brazil, Mexico and Colombia are currently the 4 (four)  jurisdictions in LATAM with the most private equity deals in the last 5 (five)  years, whereas GPs’ exposure to Argentina and Peru tends to adopt an opportunistic approach.

According to LAVCA, USD 4.1 billion was invested in Brazil in 2017 through 170 transactions, followed by Mexico with USD 1.7 billion in investments through 117 transactions. Private equity and VC funds targeting LATAM raised USD 4.3 billion through 58 partial or final closings in 2017.

Amongst the most effective strategies on the private equity scene deployed in LATAM by both GPs and LPs, we observe the following:

  • Co-investment strategy: Acquiring the necessary local skills and resources is a key element from both value creation and capital-to-deploy perspectives. LATAM GP firms can offer not only a local presence, but also a solid track record of investing in private equity, a network, an active hands-on approach and an alignment of interests, which is highly appreciated in the LATAM LP community;
  • Combination of value creation and opportunistic approaches: Creating value through a strong management, governance and operational effectiveness agenda by focusing on industries with greater expertise, while at the same time assessing opportunistic turnaround ventures;
  • LATAM LPs favour larger GP commitments: GP-LP alignment is a meaningful consideration for LPs, who prefer to invest with fund managers who make relevant GP commitments to ensure a strong alignment of interests.
  •  Most LPs consider ESG when selecting funds:
    “PE investments in LATAM must be driven as part of a long-term agenda and preferably managed from the ground: you have to be there somehow – you either find good people to run your business locally or you partner with one of the very talented local PE houses. Another important critical success factor is building trust among the LP base, something that will require consistency and personal/financial commitment at PE houses,” says Jefferson Oliveira, Director, Asset & Wealth Management at PwC Luxembourg and head of the Latin America Business Centre.
Family offices and pension funds are key players on the PE scene

LATAM LPs, like those in other parts of the world, appreciate GPs committing to the same investments. According to LAVCA’s Private Capital Fund Terms & Compensation report, at least 2% in GP commitment is considered standard in developed markets. However, 40% of all LPs believe that the GP commitment should be 5% or more, and 73% think it should be at least 3% of the total fund size.

Targeted industries for investment vary slightly depending on where the investment is made. In general, the key industries in which LATAM LPs are more inclined to invest are agribusiness (the new top sector), followed by healthcare/life sciences, consumer, financial services, education, fintech and, to a lesser extent, infrastructure.

In Brazil in particular, family offices and UHNWIs are the two segments seen as the catalysts for private equity investments. According the UBS Global Family Office Report 2018, family offices in Latin America invest approximately 37% in alternatives, with the average global investment in private equity being 22%.

“Brazil continues to present a fertile ground for private equity investments, with a big, US$1 trillion economy with over 200 million population, a strong demographic curve and liquid capital markets. The recent recession has reduced private capital availability, potentially increasing the outlook for returns in future vintages.”
says Bruno Zaremba, Partner and Head of Private Equity of Vinci Partners.

Latin American pension funds are also contributing to PE growth in the region, following a global trend observed in our Global Pension Funds study: alternative investments in all pension-fund portfolios increased from 19% in 2009 to 28% in 2017.

Chilean and Peruvian pension funds are Latin America’s pioneers on the alternative investments agenda. Chilean pension funds are currently allowed to invest up to 10% of their total AuM on alternatives, which are categorised as PE, RE, Infra and private debt. So far, only a handful of international AIFMs have obtained local approval to market their funds in those countries to AFPs. This trend will most likely be followed very shortly by other LATAM countries, representing a clear opportunity for international PE houses.

While investment appetite continues to grow, severe political turmoil has affected Latin America in 2018

Fuelled by the numerous recent presidential elections in Latin America’s largest PE markets, the North American Free Trade Agreement (NAFTA) renegotiation in Mexico, the ongoing corruption scandals in Brazil and economic struggles in Argentina, and the unforeseen resignation of Peru’s president, the headline risk in Latin America reached peak levels in 2018. Nonetheless, international LPs believe that the risk/return ratio for Latin American PE is improving across markets and in relation to 2017, showing that foreign institutional investors feel that mid-to-long-term opportunities for PE investments in the region are improving.

Political risk has become a bigger impediment for LPs considering a first investment in the region.

LPs with current exposure to Latin American PE still view currency volatility, the regulatory/tax environment, and the ability to exit from the region as less attractive than in other emerging markets.

It is of note that in the next three years Latin American LPs expect to have 60%+ of their Latin American PE portfolios allocated to co-investments or direct investments, more than triple the percentage of international LPs planning to do the same. International LPs see the lack of the necessary skills and/or resources as the biggest impediment to increasing their exposure to co-investments and direct investments.

What GPs should do to attract more LPs

Among the key aspects that Latin American PE fund terms could improve, LPs expect a further reduction in management fees after a fund’s investment period, and for management fees to be calculated based on a blend of committed and invested capital. In terms of the source of funding for GP commitments, international LPs have sharply differing views from their Latin American peers. Most international LPs believe that GPs should fund their commitments through their personal assets, whereas Latin American LPs have a slightly  lower expectation of this.

The global private equity scene between now and 2025

Private equity is the rising star among alternative asset classes. AuM almost doubled between 2007 and 2016, from USD 2.5 trillion to USD 4.7 trillion, and is expected to reach USD 10.2 trillion by 2025.

By 2020, PE AuM is expected to grow at an 8% CAGR, driven primarily by the tightening monetary policy in North America and Europe dampening AuM growth and the younger Asian PE market being set to boom . For the period 2020-2025, PE AuM may then increase at a 10% CAGR. The 8% CAGR estimate is based on  increased demand for PE investments from large institutional markets and further growth of Asian and Latin American economies.


1 Source: BIS Debt securities statistics

About Vinci Partners

Vinci Partners is a an alternative investments platform , specialising in asset management, wealth management and financial advisory services. Vinci was founded in October 2009 by a group of highly experienced managers in the financial market. It has a vast knowledge of the Brazilian economy and an extensive relationship network. The company is comprised of teams that can operate independently, but together produce synergies and results. Vinci Partners now manages approximately USD 6 billion.


LAVCA is the Association for Private Capital Investment in Latin America, a not-for-profit membership organisation dedicated to supporting the growth of private capital in Latin America and the Caribbean. LAVCA has over 190 member firms, from leading global investment firms active in the region and local fund managers to family offices, global sovereign wealth funds, corporate investors and international pension plans. Member firms control assets in excess of US$65b, directed at capitalising and growing Latin American businesses. LAVCA’s mission – to spur regional economic growth by advancing private capital investment – is accomplished through research programmes, networking forums, education, and advocacy of sound public policy. Visit for more information.

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Jefferson De Lima Matias Oliveira

Director, PwC Luxembourg

Tel: +352 49 48 48 3545

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