Larrain Vial, a Chilean brokerage that manages about $14 billion, has raised more than $250 million for a global private equity fund in partnership with Blackstone Group.
Larrain Vial says it expects to double that amount shortly, tapping into rising private equity interest from Chilean institutional investors, especially private pension funds (known as AFPs).
AFPs, which have more than $100 billion in assets under management, invest a small proportion of their assets in private equity but that is expected to grow. Larrain Vial, which also operates in Peru, Colombia and Mexico, will probably begin as a broker dealer in the US during the next few months.
“It is very important that Chile’s private equity industry develops,” says Ricardo Rodriguez, president of BBVA Provida, one of Chile’s biggest AFPs, with $36 billion of assets under management. “Currently, we invest less than 1% of our assets in private equity but we expect that will grow in the future. We want to support the local industry but we will also invest in international private equity groups if they present the right opportunities for our clients. It is a good way for us to diversify our allocation.”
Insufficient experience
Chilean AFPs invested large sums in private equity in the country in the early 1990s but many of these investments did not perform well because the local private equity groups had insufficient experience.
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“AFPs have a renewed interest in the industry but mostly with global players. There are not that many local groups with a long enough track record” |
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“This led many local pension funds to retrench from private equity,” says Tim Purcell, managing partner at Linzor Capital Partners, a private equity group based in Santiago, which has raised $200 million since 2006 for a mid-cap buyout fund that invests mostly in Chile. “However, during the past couple of years a number of global players with considerable track record have started to attract interest and the AFPs have started to move in the direction of private equity investment again.”
He says that a number of AFPs are ensuring that they have the internal capabilities in place to undertake due diligence and properly evaluate international private equity groups.
Looking for the best
“In the 1990s, the Chilean AFPs mostly invested in small, local private equity groups without a lot of experience,” says Enrique Bascur, head of Latin America at Citi Capital Advisors, which has been one of the biggest private equity investors in Chile for the past two decades. “Today, they have a renewed interest in the industry but mostly with global players. There are not that many local groups with a long enough track record. The AFPs are looking for the best opportunities for their members and that could mean that they invest in an international group involved in private equity deals around the world, not only in Chile.”
He adds that although Brazil is attracting more interest from international private equity groups because it has a much bigger economy, Chile is attractive as it has a very open economy and a number of Chilean companies have interests throughout the region.
Private equity groups are investing in all industrial sectors but the hottest ones are healthcare, education, software, hotels and entertainment, and real estate development.
