Category: Funds

Scotiabank is taking a controlling stake in Dominican Republic pension fund BBVA Crecer AFP and insurance company BBVA Seguros. BBVA Crecer AFP manages more than DOP6.5 billion ($196,000). Scotiabank did not disclose the value of the transaction, which is subject to regulatory approval.

EM equity markets are benefiting from a funds exodus from the developed world, according to flows tracker EPFR Global. LatAm dedicated equity funds saw fresh cash inflows in the week to September 5, while all of the major equity and bond fund groups tracked by EPFR that are geared primarily to developed markets posted net outflows. Investors appear to be putting their faith in cash and EM. “This is proof, if it was needed, that investors and fund managers are now judging emerging markets on their own merits rather than seeing them as a tail wagged by the US and Eurozone economies,” says EPFR MD Brad Durham. “In addition to the fact these markets are now getting some of the safe-haven flows, we’re seeing a shift to quality within the asset class,” he adds. The quality hunt is focused on Asia, whose funds ex-Japan, saw $1.25bn in flows, mainly for money market and energy sector focused pools of money. They have posted a collective year-to-date gain of 30.7% versus 6.3% for global equity and a 5.4% loss for Japan equity funds. Optimism about emerging Asia is boosting commodities and thereby helping LatAm equities. Year-to-date flows into these funds are now double last year’s total, although their performance gain of 26.4% lags the 46.5% these funds posted for all of 2006. Resource-rich Brazil, which has a 59.1% weighting among regional funds, continues to drive this fund group, says EPFR. Brazil country funds absorbed fresh money for nine of the 11 days ending September 4 as investors continue buying into its declining interest rates and accelerating growth.

Enfoca SAFI, a newly formed PE fund based in Lima, is looking to raise as much as $150m locally and offshore for its Descubridor 1 and Discovery 1 funds. The former has already raised $50m in soles, while the latter is set to wrap up its capital raising in September, Bernardo Mateluna, the portfolio manager, tells LatinFinance. Enfoca recently invested $12m in Maestro Home Center, a home improvement retailer, though the size of the stake has not been disclosed. Among the chief investors in the deal is Farallon Capital Management, a San Francisco-based hedge fund with upwards of $30bn under management.

LatAm private equity activity was robust in the first half of 2007, according to Venture Equity Latin America (VELA). PE investment is seen on pace to exceed the 2006 near record level, with roughly $2.3bn in the first half of 2007. “Brazil and Mexico dominate the activity, but as certain sectors in these countries are becoming inundated with private equity funds both locally and from abroad, lower valuations make the rest of Latin America a more attractive option,” says VELA. The Andean region has taken $376m in investment so far this year, and not all of it was Chile, says VELA. Fund raising is also on its way to a record year. In the first half of 2007, 20 fund closings amounted to a total of roughly $1.5bn, while two billion-dollar fund closings took place in July, bringing the total close to the $3.66bn raised in 1998. VELA adds that 2007 fundraising data shows over 80% raised in the first half of the year will be dedicated to Brazil. Meanwhile, overall exits in the first half of the year totaled almost $1.6bn, on track to match exit disbursements in 2006, says VELA.

Enfoca SAFI, a newly formed PE fund based in Lima, is looking to raise as much as $150m locally and offshore for its Descubridor 1 and Discovery 1 funds. The former has already raised $50m in soles, while the latter is set to wrap up its capital raising in September, Bernardo Mateluna, the portfolio manager, tells LatinFinance. Enfoca recently invested $12m in Maestro Home Center, a home improvement retailer, though the size of the stake has not been disclosed. Among the chief investors in the deal is Farallon Capital Management, a San Francisco-based hedge fund with upwards of $30bn under management.

Emerging Capital, a new private equity (PE) shop based in São Paulo, is raising a debut PE fund aimed at Brazilian investors, with a target of BRL200m. The fund, which will include participation from pension funds, wealthy individuals and other local institutions, is expected to be closed by the end of the year, Rodrigo Lowndes, founder and former president of Morgan Stanley Brazil, tells LatinFinance. Carlos Dale, formerly part of Pactual’s M&A team, and Erico Carmo, former CFO of software company Genco, are the other two senior executives on the team. So far Emerging Capital has taken a 17% stake in Qualta Resorts, a high-end real estate development company. It is set to close two more deals in the real estate and education sectors. “Our [minimum] threshold for returns on these types of deals is 35%,” says Lowndes, adding that initially it will look to take BRL20-BRL30m stakes.

The total estimated project cost of Proyecto Eolico Guanacaste (PEG), a wind power project in Costa Rica, has risen 10% to $103m, according to its developer, Econergy International. PEG is expected to start operating in 2008 and Econergy has recently signed a turbine supply and maintenance agreement with Germany’s ENERCON. Econergy expects the project to annually generate approximately 245,000 MWh. Econergy has a 45.9% interest in PEG and is also involved in wind power projects in Bolivia, Brazil, Mexico, Costa Rica and Chile. It is listed on the LSE’s AIM.

Citi has upgraded its ratings on Aracruz, Suzano, and VCP to buy from hold and sees the recent pull back as an attractive entry point. “In the short term, we should continue to see volatility due to increased risk aversion and expected lower pulp prices in 2008. However, LT industry fundamentals have not changed, and these companies are well positioned to continue to gain pulp market share globally,” says Citi. VCP is the shop’s top pick. It estimates that Brazilian pulp producers should trade around 1.5x replacement cost, based on the assumption that the present value of the cash flows of a new mill (without tax incentives) is 50% higher than the investment cost. “Currently, VCP and Suzano are trading around 1.0x replacement cost, while Aracruz is trading at 1.2x,” says Citi, adding that all three will continue to grow, creating additional value.

Outflows from dedicated debt and equity funds were less than expected last week, though all experienced losses in the flight to quality, according to EPFR Global. “All the major emerging markets fund groups also saw outflows, although the collective withdrawals were only a third of the previous week’s tally,” says the fund tracker. However, while global EM equity funds again suffered the flight of 0.22% of assets under management (AUM), Latin America equity funds only lost 0.05% of AUM. Meanwhile, EM bond funds saw their fourth straight week of outflows, though EPFR says the pace was only 10% of the previous week’s as EM debt rallied. “For the second week running local currency emerging market bond funds received inflows while the funds investing in hard currency emerging market securities had outflows,” says EPFR.

Despite a shaky performance over the past two weeks, LatAm fixed income assets remain attractive thanks to strong fundamentals for both corporates and sovereigns, PIMCO portfolio manager Adam Borneleit tells LatinFinance. “It’s hard to know where the pricing settles out in the short term, but fundamentally, [LatAm] is doing well,” says the investor, who helps manage more than $48bn in EM assets for the fund. Having pre-funded for the coming year, sovereigns are in a good position and can even consider buying back debt, adds Borneleit. Overall, internal dynamics in most LatAm countries are also solid, with strong domestic demand helping keep corporates, most of which have kept low leverage levels, also in good shape, says Borneleit.