Category: Funds

Chile and Brazil set the pace for LatAm private equity and venture capital, says the Latin American Venture Capital Association (LAVCA) in a new ranking of the investment environment. Brazil this year jumped 10 points, closing in on Chile. The LAVCA scorecard ranks 13 countries on tax treatment, minority shareholder rights, capital markets development, bankruptcy regulation and nine other indicators affecting VC and PE. “Our 3rd annual scorecard shows momentum across the region,” says LAVCA chairman Eduardo Elejalde, founding partner of Latin America enterprise fund managers. “It also shows that much room remains to improve local investment frameworks,” he adds. Brazil’s sharp rise reflects a year of buoyant capital markets and local pension fund PE/VC activity. LAVCA also notes firm gains in a new category, entrepreneurship, as well as dramatic improvements in Colombia and Peru. “Latin American economies and exchanges continue to perform well, and private equity and venture capital investment in the region has increased seven-fold since 2005,” says LAVCA. Behind Chile and Brazil, the following LatAm nations are ranked, in this order: Trinidad & Tobago, Mexico, Uruguay, Colombia, Costa Rica, Ecuador, Panama, Argentina, Peru and El Salvador.

London-based Capital International has closed its CIPEF V fund, an EM-focused vehicle, at $2.25bn. Jim McGuigan, a partner at the firm, says LatAm has represented a growing piece of CIPEF’s EM business. “Our Fund III had 10% in LatAm, and our Fund IV had 38% in LatAm,” he tells LatinFinance. The company has already made six investments from the new fund, including leading a private equity (PE) consortium to acquire McDonald’s’ LatAm business, called Arcos Dorados, for $700m. “We’ve found that management teams in LatAm are among the best in the world,” says McGuigan, noting the contrast to earlier years of private equity activity in the region. CIPEF has been investing in Latin America since 2000 and has deployed $355m across eight investments. The average deal size for CIPEF V is $100m, adds McGuigan. In LatAm today, CIPEF holds stakes in Brazil’s Editora Abril and Magazine Luiza, and Argentina’s Jumbo. All three businesses as well as Arcos Dorados are in the consumer space.

Investors are rotating out of money market funds and into riskier assets, according to EPFR Global, which notes solid receipts for LatAm equity. Data through April 30 – which do not reflect the Brazil sovereign upgrade of that day – show flow of $336.6m into LatAm regional equity funds, taking assets under management (AUM) to $50.52bn. This compares to $804.5m receipts in the previous week. “Investors are getting more risk back in their portfolios,” says Brad Durham, an MD at EPFR Global. He highlights sustained interest in high yield bond funds, EM equity and US small cap stocks. “Strong flows into high yield are especially noteworthy, since the nearly $2bn of inflows into these funds over the past four weeks is the strongest since the first quarter of 2007,” adds Durham. Dedicated BRIC equity funds absorbed a net $462m, marking their best week this year. Brazil equity funds took in $56.6m, bringing AUM to $14.2bn. Global EM equity funds also had their best week since late Q4 2007. By contrast, investors withdrew $32.4bn from money market funds in the week leading up to the US Fed meeting April 30. Meanwhile, in fixed income, there were EM withdrawals in all but local currency bond funds.

LatAm equity had a strong week, marked by inflows into the region’s main fund groups, according to EPFR Global. Optimism was running high as some investors speculated the current slowdown has hit a bottom, and that commodity prices would remain strong going forward, says EPFR. Brazil equity funds saw inflows of $114.4m in the week ended April 23, which increased its assets under management (AUM) by 3.2% to $14.1bn. Mexico country funds saw inflows of $54.7m, a 3.4% rise in AUM. LatAm equity gobbled up $804.4m, which increased its AUM by 3.6% in the week. In the rest of EM, optimism prevailed, but was more muted. Diversified global EM funds took in $361m while Russia country funds swelled $248m. Year to date, LatAm is the only EM equity fund group to post a collective gain on portfolios, says EPFR. Meanwhile, dedicated LatAm equity funds lost 1.09% in the week ended April 24 on a total returns basis, according to Lipper. China region funds were the biggest gainers of the week, with 7.53%, while EM market funds gained 1.13%. Gold oriented funds experienced the biggest drop of the week, shedding a whopping 10.41%.

Peru placed PES600m ($216m) in sol-denominated 6.95% 2031 sovereign bonds on the local market. The ministry had originally targeted PES400m, but raised the offer on demand that reached PES1.357bn, the finance ministry said. The transaction follows a PES273m sale in March, as Peru focuses on liability management and repaying expensive foreign debt.

Peru’s finance ministry plans to offer up to PES400m ($140m) in sol-denominated 2031 bonds in the local market today. Last month, Peru sold PES273m in local bonds as part of its plan to sell PES2.88bn in local debt this year via monthly sales.

LatAm equity funds took $182.8m in new funds in the week ended April 9, according to EPFR Global. Brazil equity funds also received $42.4m, raising total assets under management for that country by 3.1% to $13.7bn. The positive performance was echoed more broadly in EM, with GEM equity funds posting their best week in 2008 following two consecutive positive weeks. “Our daily fund flows data indicated something of an inflection point for emerging markets funds during the last week of March and a clear one for Europe equity funds on April 2,” says EPFR MD Brad Durham. EMEA equity funds, however, were negative for the fourth time in the past five weeks on concerns of current account deficits in places like Turkey, South Africa and Eastern Europe.

EM debt flows bounced back into the black this week, thanks entirely to robust investor purchases of local currency fund shares, says ING, which cites EPFR Global and JPMorgan data. The most recent mutual fund investor data for the week ended April 9 reveals a net flow of $144m (0.21% AUM) in to EM debt funds. “The recovery was due to the substantial $242m (1.28% AUM) of local currency fund purchases which helped offset $95m (0.26% AUM) of hard currency fund outflows,” says ING. “The data comes as something of a relief after the $177m outflow from EM debt funds last week which had included a troubling $20m worth of local fund redemptions,” says ING. The shop also notes a bumper $878m (1.08% AUM) flow into US high yield funds.

The Overseas Private Investment Corporation (OPIC) is providing financing to new private equity (PE) investment funds via a new fund worth up to $1bn. The agency, which will front up to a third of the cash, is inviting proposals for the formation and management of one or more investment funds to invest in LatAm. OPIC will provide debt financing of $25m-$50m for each fund. The Funds will be privately owned and managed and will be expected to build a diversified portfolio in terms of exposure to the various investments in the specific strategies outlined based on the proposals submitted. OPIC seeks to facilitate the investment of risk capital to expand the breadth and depth of LatAm capital markets. It is focused on supporting funds that address specific market gaps in forms of capital in scale, as well as investment product. It is interested in medium and long-term debt, local currency debt, mezzanine financing, private equity for SMEs, and new publicly listed debt and equity securities. OPIC’s financing will be provided in the form of senior long-term indebtedness loaned or guaranteed by the agency. The balance of each selected fund’s capital is to be equity raised from private investors, international financial institutions, and other interested parties. Franklin Park is the independent advisor.

The IDB is preparing a novel vehicle to target investments in the biofuels and renewable energy space. The multilateral is teaming up with private equity (PE) funds to raise up to $500m in debt and equity to help finance emerging companies in countries like Brazil, Mexico and Colombia, Daniela Carrera-Marquis, head of the financial markets division at the IDB, tells LatinFinance. The fund, which has a 10-year lifespan, is expected to be ready within a few months and the IDB has already identified projects it expects to finance. The vehicle will be composed of roughly equal portions of IDB debt capital destined for long term loans to borrowers and equity capital from PE managers and their investors. The debt financing will accompany equity provided by the fund to emerging companies in the sector, which will be subject to the IDB’s sustainable development criteria. The IDB has used a similar fund structure to allocate capital for trade finance on two separate projects, but it is entering new waters by approaching the highly sought after biofuels and sugar sector. Brazil in particular is a recipient of an aggressive flow of funds from an array of investors ranging from offshore hedge funds to local PE, as well as corporates in the energy and agriculture sectors.