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PE & VC Trends in LATAM

By Adem Abbas and Fabrizio Coccaro

Initially posted on the BSPEC blog


Last year, many investors began noticing Latin America for their large private equity and venture capital deals, often backed by the SoftBank group. With 20% of Softbank’s fund portfolio invested into countries such as Mexico and Colombia due to their innovative start-ups in delivery and payments systems respectively, there are many promising opportunities tucked away in this emerging market. However, throughout the last few years and more so now than ever, Latin America has been plagued with and characterized by political uncertainty and economic instability. With increasing levels of ambiguity regarding the political climate, will Latin America be able to sustain investor interest and continue to build upon their impressive history in private equity?

Challenges in Latin America

Unfortunately, LATAM starts off on the wrong foot; despite previous venture capital success, growth in the southern continent has been particularly mediocre. Countries like Venezuela that are struggling with hyperinflation, a major humanitarian crisis and poor performances for their bondholders have observed depressed levels of economic output and growth. More generally, Latin America has seen growth stagnate partly due to the global trade war and low commodities prices and is forecast to expand only 1.2% to 1.8% next year. Notably, this rate is slower relative to other emerging markets and well below the continent’s average growth rate of the last 10 years. Other interconnected economic problems such as the Argentinian recession caused neighboring Brazil to experience a disappointing year as a result of low export demand.


High levels of uncertainty have also contributed to the flat-lining of growth for Latin America with countries such as Chile (projected with a low growth of 1.2% next year according to Itaú BBA) yet to decide on a new constitution and Bolivia recently announcing to hold a new presidential election on May 3, 2020. Moreover, uncertainty also clouds Argentina’s new government as it is yet to be determined whether they can pull the country out of the recession and renegotiate their foreign debt (which amounts to $100 billion).

All the political and economic disarray has continuously played with foreign investors’ expectations, wrong-footing them on many occasions. The impact of uncertainty is evident in the case of Argentina’s election last year.


Moreover, the political climate is yet another challenge facing Latin America. With Mexico’s President Andrés Manuel López swearing to end market policies which have lasted for 40 years leading to low confidence and dormant investment, growth is being impaired by political decisions too. Certain regimes have led to social angst breaking out in Chile with riots lasting for months. Colombia and Ecuador are also experiencing many demonstrations and investors fear that pressure from the public will lead governments to promise spending programs which are unaffordable due to weak budgets.

International economic frailty, especially high levels of uncertainty and political dysfunctions leading to social unrest, have been vital challenges in the LATAM region and have hurt economic growth in an otherwise resourceful continent. However, despite all the negative headlines, there are still attractive opportunities for private equity and venture capital, particularly in fintech and infrastructure.

Trends in the LATAM market

Despite all the uncertainty surrounding the LATAM region, PE and VC have continued to grow. According to the Emerging Markets Private Equity Association, Latin America managed to set a record with PE flows into the region reaching $4.4 billion. Brazil was mostly responsible for this recovery as it obtained 70% of all the new capital invested. Many tie this PE performance to reform allowing the country back to recover. Economists predict that President Jair Bolsonaro’s pro-business policies (lower interest rates and investor-friendly reforms) will finally deliver a long-awaited recovery in Brazil, boosting growth to 2.0-2.6% in 2020 from 1% this year. Mario Mesquita, chief economist at Itaú Unibanco, said that ’Brazil is the economy best positioned now to keep growing’ and according to Lisandro Miguens, head of Latin America debt capital markets for JPMorgan ’Brazil is going to be the engine for the DCM market’. But what deals are most popular amongst international investors?

The low-interest-rate environment has led to mass migration from fixed income in Brazil and other Latin American countries, to equity markets where there has been tremendous activity. With this, there has been a significant investment influx into infrastructure. Since this alternative asset class is uncorrelated to traditional equity markets and holds a low correlation to bond markets, it offers a risk-averse investment during times of financial turbulence. Between 2008 and 2018, total infrastructure (managed by PE funds) in the region shot up, from $2.7 billion to $40.3 billion. A potential reason for this could be that this type of investment provides a long-term play for private equity firms.

The technology sector has also observed a boost with 28% of Brazilian PE deals in the first half of 2019 from this category. Not only this, but international investors are mostly interested in firms with tech backgrounds, regardless of the sector the firm operates in which further emphasizes the importance of technology. Although financing is most certainly not purely conditional on technological innovations in every sector, companies and industries promoting their use of technology in the LATAM region are sure to turn the heads of many international investors. Overall, fintech attracts the most deals, as seen below:


Start-ups in fintech are trendy since there is still such a large unbanked population in the LATAM region and once again, we see that technology is driving PE and VC flows into the region regardless of the political climate.

In the LATAM region between 2008 and 2018, the number of middle-class households increased from 33 million to 46 million and over the same period, median income has increased from $7,971 to $10,745. As the middle class expands, its additional income which needs to be managed appropriately has led to flexible finance being introduced into the region. As increasingly more start-ups are being formed with a new generation of entrepreneurs, providing alternative financing is becoming more popular (relative to traditional VC). However, impact investing is also becoming much more common and LAVCA stated that there is an overlap between impact investing and VC. For example, Partners Group (an international PE firm) funded Partners Group Impact Investments with their priority market being Latin America. With data suggesting that for the period 2020-2025, global PE assets under management may increase at a 10% compound annual growth rate, there still exists certain investments which look promising to say the least.

Overall, although Latin America is facing significant volatility stemming from both the economic conditions within countries and the political decisions being made, there are indeed certain trends which could help LATAM maintain the historically impressive numbers with regards to VC and PE.

Brazil economic and political turmoil

Despite the recent economic recession and the political volatility that characterized Brazil in the past, recent macroeconomic efforts, such as the persistent reform processes, with attention to social security and labour and cost reduction measures, have repositioned the country on a positive path. On the other hand, the access of local general partners to profitable deals and the opportunity to access new funds in the funding phase restore the strength of the Brazilian private equity industry. For these reasons, Brazil remains an attractive strategic market for global investors.

After the recession period and the struggle of the PE industry in the last decade, Brazil led the recovery and accounted for 70% of all capital invested in Latin America. PE experts point to the progress in Brazil’s pensions reform and the lower interest rate and inflation environment as the main drivers for deals.


Capital downturn

Capital raised for Brazil-focused private capital vehicles grew early in the decade but has fallen off over time. While some local managers who raised capital during the last boom will not raise new funds, the ones who did not participate in the upswing back then now have various opportunities in the country. Pertinent factors include the prevalence of family-owned businesses, high industry fragmentation and relatively low productivity. Recent deal activity has been concentrated in recession-resilient sectors such as health care and education as well as new verticals in technology and consumer services.

Heavy investments in logistics and distribution are mainly due to the excessive use of roads instead of other modes of transport that are cheaper and more efficient, such as railroads or waterways. On the other hand, the pressure of high costs and the need for investment also begin to change the dynamics in public health. Change begins in the form of the first Public-Private Partnerships (PPPs) projects in health care. In these models, the government pays private agents through investment in infrastructure, technology and human capital for the operation of public hospitals.

Private capital as an asset class in Brazil has been growing gradually since 2000, but the flood of capital into the country following the Global Financial Crisis, as well as the subsequent economic and political turmoil, accelerated this process. In 2011 alone, fund managers raised $7.3 billion across buyout, growth, venture capital (VC) and infrastructure strategies as large GPs such as Gávea Investimentos, Patria Investments, Vinci Partners and BTG Pactual closed funds of over $1 billion.

Nonetheless, as Brazil’s economic crisis took hold and excitement faded in 2015, investors readily pulled back from the country. While fund managers had raised an average of $4.1 billion per year from 2010 to 2014, Brazil-focused funds raised only $2.8 billion during all of 2015 and 2016. Moreover, just $1.1 billion was raised in the first half of 2019 compared to $9.1 billion in 2018.

The economic crisis not only affected investors’ perceptions of Brazil, but it also had a profound impact on the composition of fund managers active in the country. The fund managers that survived the crisis or have the capital to deploy are much more attentive with the sectors they invest in, and with the types of deals. Fund managers continue to attest to the importance of organic growth in driving returns over the long run, but for some, the uncertainty of the last few years has meant contracting their focus to firms with more stable, predictable cash flows in which they can execute value creation plans more rapidly.



New strategies and the revival

Lessons learned during the crisis will encourage local institutional investors to adjust with international LP standards by moving away from involvement in investment committees and improving their fund selection processes. These changes can help build up a more sustainable industry moving forward.

The opportunity for private capital in Brazil ultimately rests on a simple idea: a more sophisticated group of GPs looking to partner with private businesses that are not satisfied with conventional financing options and increasingly interested in outside capital and expertise. Brazilian businesses progressively look at private capital funds as a credible and reliable source of financing and managerial support.

Beyond attractive pricing and low competition in the private equity industry, key characteristics of the Brazilian economy have made sectors like healthcare and education particularly interesting for private capital investors. As the purchasing power of middle-class consumers increases, they have tended to switch from public healthcare and education to private services.

Equity capital markets in Brazil experienced a revival in 2017, and GPs took advantage through listings that have generated much-needed liquidity for their investors. However, the volatile nature of these windows suggests that fund managers must be able to execute their value creation plans quickly in order to be prepared to exit at the right moment. As a result, GPs investing at the larger end of the market may increasingly favor investment targets that need less transformation.

The country’s large and dynamic economy, driven by a young and urbanized middle-class consumer base, continues to provide abundant opportunity for fund managers and investors able to address the country’s productivity gap and bring value to private businesses.

Editor: Štěpán Koníř

Authors: Fabrizio Coccaro, Adem Abbas

Bocconi Students PE Club
Bocconi Students PE Club
The Bocconi Students Private Equity Club (BSPEC) is a student-led organization at Bocconi University. The club publishes articles related to private equity and venture capital, conducts interviews with active PE professionals and hosts events featuring funds and advisors. BSPEC is one of the oldest and most active student associations at Bocconi University and its alumni are currently employed at top tier investment banks and PE funds. Learn more at

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