Latin America: European investors turn to LatAm private equity


Helen Avery
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Latin American private equity fund managers report an increase in interest from European investors. According to a survey of managers by KPMG, European institutional investors account for 13% of fund sources – in 2004 European investors had no presence at all. European investors are also becoming more prominent relative to US investors as the latter, having become a little more risk averse, are looking away from Latin America towards more established markets to make investments. US institutional investors are still the primary sources of funds, said 41% of respondents; in 2004, though, this figure was 49%.

The private equity market in Latin America appears to be becoming less attached to the US market. About 55% of managers are expecting some impact from the tighter credit environment in the US but only 21% think that impact will be significant. Some 8% go as far to say there will be little or no impact at all.

"Latin America private equity investors remain wary but apparently are not overly concerned about the effect of the US market, mainly because there is still good availability of funding for the small and medium-sized deals that comprise the bulk of their portfolios, and because sub-prime debt is not a factor in the region," says Jean-Pierre Trouillot, a Miami-based partner in KPMG’s transaction services practice. "Of course, if a US recession materialized, the outlook could change."

Primary target

Regionally, Brazil looks set to remain the focus for private equity fund managers over the next two years. Mexico was cited by 34% of respondents as their primary target for deals during the same period. Colombia has surged in popularity, says the survey. It has not traditionally been of interest to private equity investors but 30% of respondents now cite Colombia as their primary target for spending in 2008 and 2009.

Fund-raising in 2008 in Latin America is expected to be the same or slightly less than in 2007. "After an extremely busy period of raising capital not seen in the region since the record-setting 1990s, fund managers now must look to put their capital to work," said Trouillot. "Investment activity should experience an uptick in 2008 as a result."

Infrastructure deals will attract the most spending over the next two to three years, according to almost 70% of respondents, closely followed by energy and natural resources. Reasons cited for deal failure were ineffective management and poor due diligence.