More than 85 percent of limited partners expect their commitment pace to Latin America-focused private equity and real estate funds to increase or stay the same over the next 12 months, according to a study released by Coller Capital and the Latin American Private Equity & Venture Capital Association Wednesday.
Coller Capital’s Erwin Roex attributed the results to several factors. Most notably, many LPs are seeking better returns as more established private equity markets continue to disappoint in the years following the economic crisis.
“There are two reasons for that: on the one hand, [LPs] have been somewhat disappointed with their returns from private equity in mature private equity markets,” Roex told sister publication Private Equity International. “And on the other, they’ve also become a little cooler towards the key emerging markets they’ve invested in– India and China especially. I think Latin America is now at the forefront of their thinking.”
Despite growing investor interest in the region, Latin American fundraising is expected to fall off from 2011 totals, when pan-regional and Brazilian-focused funds raised $8.4 billion. Latin America-focused funds had raised $1.65 billion in the first half, according to a recent Emerging Market Private Equity Association study.
The previous year’s totals were heavily boosted by a bevy of mega-funds, including billion dollar vehicles from Vinci Partners, Gavea Investimentos, BTG Pactual and Patria Investimentos. Even though fewer major firms are on the market, there are opportunities for investors to access the region.
“There are still quite a lot of smaller funds being raised, but in terms of overall volume that can’t get you to what the mega-funds raised,” Roex said. “Although the overall volume is considerably smaller, from a historical perspective I think it’s still a decent number.”
That means LPs will likely have to go with less established local managers if they want access to Latin America. As the region’s market is less developed, those types of commitments often require taking a chance on less experienced firms – and more than 40 percent of those surveyed said they would be willing to invest in a GP’s first Latin American fund.
“This is an area where most LPs don’t feel naturally comfortable, but they know that if they want to invest in emerging markets, it’s something they have to get used to,” Roex said.
Even though some investors said they would be willing to take a chance on first time funds, few said they would invest with firms that don’t maintain a presence in the region. LPs’ long-asserted preference for ‘boots on the ground’ was reinforced by the survey, with 90 percent of international respondents saying they only invest in Latin American-based firms.
Coller and LAVCA’s survey featured responses from 105 Latin American and international private equity investors. Respondents included corporate and public pensions, banks, government-owned organisations, insurance companies, funds of funds, family offices and other investors.