Private equity funds increased their investments in Latin America by 53 percent last year, grabbing a 21 percent share of emerging market private equity. Their focus is on industries that benefit from the emergence of new consumers.
Latin American economies have been flourishing for several years. Stock markets have rallied, debt burdens are down, millions have left poverty, and demand for goods and services has risen.
Yet, for too many companies seeking to ride this wave of growth, traditional sources of financing remain off-limits. Local stock markets or bank loans frequently remain reserved for the region's massive multilatinas, the conglomerates, and the big players in energy and other natural resources.
Not all is lost, however. Plenty of financial venues are now available for the mid-sized company seeking to service Latin America's growing middle class. Enter the private equity fund, an investment pool that buys, streamlines and sells off newly improved companies for a profit.
Last year, private equity funds invested a total of $7.9 billion in 237 projects across the region, a 21 percent increase from the amount invested, and a 37 percent increase in the number of deals from 2011, according to research compiled by the Latin American Private Equity & Venture Capital Association (Lavca).
Brazil tends to see the lion's share of private equity investments, but that may be changing. Other countries such as Chile, Colombia and Mexico are capturing the eyes of these powerful funds. "What we saw is the fact that Brazil is starting to become a very consolidated market," said Juan Savino, director of research at Lavca. "Investors are not only seeing Brazil, but also countries beyond Brazil."
Traditionally in Latin America, pension funds or wealthy families own larger companies either privately or by holding stakes in the local stock markets. Private equity funds do not compete with pension funds or wealthy families. Instead, they act as an alternative investment class. "We have seen regulators start allowing investments from pension funds in private equity, and that has supported the growth of this market--this has been a major contribution to the industry, not a competitor," said Savino.
Private equity funds are finding very attractive investments among sectors of the economy that cater to the growing middle class. Last year, consumer and retail companies were the most popular investment targets...