Venture Equity in Latin America: Impact of US Credit Crisis

Venture Equity Latin America (VELA) recently discussed and listened to presentations on the impact of the US market and credit crisis with a number of key executives involved in Latin America PE/VE at a conference, and most agreed that U.S. economic weakness won’t have a major impact on venture equity in Latin America.
“I’m optimistic” about Latin American venture equity, said Juan Carlos Torres, senior partner at Advent International, a major private equity firm in the region. “I’ve been through so many Latin American crises that this is nothing.”
Steven Puig, vice president of private sector operations for the Inter-American Development Bank said he is “optimistic” about the Latin American economy for the same reason. “We’ve likely seen worse homegrown crises in the past and absorbed those. Dealing with an external crisis is something that could be more manageable.”
Most financial institutions are still liquid and with the level of venture equity funds raised for Latin America so low, there’s plenty of room on the upside, Torres said. While private equity funds raised $60 billion to invest in Asia over the last three years, they took in only $7.6 billion for Latin America.
“Many financial institutions are looking for other markets than Asia, so there is a lot more focus on Latin America,” Torres said. “We had more visits from financial institutions in the last year than in the previous 11,” he said.
There are several good reasons for venture equity investors to choose Latin America over Asia, said Bernard McGuire, director of private equity for the Overseas Private Investment Corp. (OPIC).
One he specified is that it’s easier to put a hedge on a Latin American investment than one in Asia. For example, in Latin America, investors can buy convertible notes, while in India and China they can’t, McGuire said.
Advent certainly isn’t having trouble telling investors the Latin America story. The firm was able to draw $1.3 billion in three months last year for its latest fund, which was heavily oversubscribed, Torres said. That fund drew about 60 percent of its investors from U.S. financial institutions and the rest from Europe and the Mideast.
Advent has seen strong demand from sovereign wealth funds in Asia and the Mideast, Torres told VELA. “About 20 percent of our investors came from there over the last year or two, and I think that will keep growing.”
He said Advent likes to choose its deals by sector. “The advantage of that is you get scale, accumulate knowledge and, most importantly, learn from your mistakes,” he said.
For example, Advent has closed 11 deals in the airport sector during its 12 years in Latin America, Torres said. Those deals covered retail shops in airports, food and beverage operations and airport concessions.
In exiting those investments Advent earned a return ranging from 82 percent for the food and beverage deals to 968 percent for the retail deals.
Other sectors in which Advent is active include financial services and retail, Torres told VELA. And the firm is looking at the energy industry. Why? “It’s a key sector in Latin America that is still fragmented,” he said. “It’s not controlled by large multinationals, so there are opportunities for consolidation.”

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