Latin American private equity climbs to a new high

Private equity funds targeting the region shook off political and economic change to deliver a record 2017, while economic recovery and reforms in key markets prophesy a strong 2018

The Latin American and Caribbean private equity (PE) market enjoyed a record-breaking year in 2017. A flurry of activity in the region saw the industry secure 103 deals over the year, reflecting intensifying competition for assets.


According to research firm Preqin, private equity assets under management have swelled to a record US$2.38 trillion globally in 2017. This picture was mirrored in Latin America, with an influx of dry powder spurring dealmaking.

After a challenging period, signs of economic recovery and pro-investment reforms in key markets have resulted in a more positive sentiment among dealmakers. Brazil’s stock market has reached record highs in 2018 and a change in political leadership has helped to draw a line under corruption concerns. Brazil’s Securities Commission has also reformed fund formation and fund management rules, which will benefit private equity managers.

Similarly in Peru, President Kuczynski recently tapped special legislative powers granted by Congress to enact pro-investment anti-corruption measures, such as barring entities convicted of corruption from securing government contracts.

Macri economics

In Argentina, the election of a new pro-business government led by Mauricio Macri in 2015 simplified taxation and passed a new entrepreneurship law with the intention of supporting small businesses and providing incentives for investment.

Argentina was Latin America’s largest private equity market in the 1990s before a financial crisis in the early 2000s, and more than a decade of populist government damaged economic growth. There is optimism that the Macri reforms can revive the asset class in the country.

Mexico’s government has launched new anti-corruption measures, which will benefit investment if effective. A change in rules allowing local Mexican pension funds to make allocations of up to 10 percent of their assets into private equity has enabled the formation of new firms and growth for existing managers.

Chile, likewise, has recently enacted investment-friendly anti-corruption legislation that criminalizes money laundering, facilitation payments, and the active and passive bribery of public officials and foreign officials, and also requires mandatory asset disclosure requirements for public officials.

Fresh faces

International firms are taking notice of the positive outlook for private equity in the region.

North American pension funds have been especially active through their direct deal teams. Canada’s Public Sector Pension Investment Board, for example, teamed up with listed Mexican airport operator Grupo Aeroportuario del Sureste, announcing plans to acquire a 50 percent stake in airport operator Aerostar from US fund Oaktree in a US$430 million deal.

In October, La Caisse de dépôt et placement du Québec (CDPQ), a long-term institutional investor, and CKD Infraestructura México (CKD IM), a consortium of Mexican institutional investors, acquired 80 percent of a portfolio of Mexican wind and solar assets owned by Enel Green Power, an Italian multinational renewable-energy corporation.

The Canada Pension Plan Investment Board, meanwhile, partnered with Brazilian energy group Votorantim Energia in a plan to acquire wind farm asset Casa dos Ventos Energias Renovaveis for US$544.3 million.

Renewed energy

These deals reflect strong investor appetite for energy deals in Latin America. A total of 12 private equity deals worth US$3.92 billion ranked the sector as the highest by value in 2017, accounting for five of the ten largest private equity deals targeting the region.

Other significant energy transactions announced in 2017 included the US$1.25 billion purchase of the Mexican assets of US power group InterGen by London-based emerging markets investor Actis. Actis also acquired Brazilian wind farm portfolio Gestamp Renewables in a deal valued at US$765.5 million. Also announced in 2017 and just completed was Inkia Energy Ltd.’s US$1.3 billion sale of its Latin American and Caribbean businesses to I Squared Capital, an infrastructure private equity firm.

Consumer confidence

It was the consumer sector that attracted the highest number of private equity deals in 2017, with a total of 18 deals worth US$1.52 billion announced—the highest annual deal count on record.

According to a survey of 150 global institutional investors conducted by the Latin American Private Equity & Venture Capital Association (LAVCA) and Cambridge Associates, the consumer and retail industry will be the most attractive area for private equity investment over the next three years. Confidence in the sector is underpinned by favorable demographics and a growing middle class.

Increasing interest in strategies focused on export-oriented deals in markets where there is currency volatility is another explanation for rising investor appetite.

Bumps in the road

Despite the confidence returning to the market, Latin America continues to present potential challenges for dealmakers. Brazil has made progress, but political uncertainty still lingers there, which may continue to give some dealmakers reason for pause.

Mexico, meanwhile, is facing presidential elections in 2018 and has also been weighed down by renegotiation of the NAFTA free trade agreement. It will take some time for reforms in Argentina to take hold. Latin America also continues to be characterized by large, family-owned companies that are reluctant to sell majority stakes to buyout firms.

Strong fundamentals underlying key sectors such as consumer and energy, however, suggest that private equity dealmakers will continue to focus on the upside of making deals in Latin America.

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