Thu, Jun 4, 2020
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Cambridge: Look to private investments for best access to LatAm growth

Monday, September 26, 2016
Opalesque Industry Update - Even with recent economic woes, Latin America retains a burgeoning middle class with more money to spend on fast-growing sectors such as healthcare, education, technology and retail.

These industries remain largely inaccessible via public markets, and the best way for institutional investors to access them -- and the opportunities they represent -- is through private equity and venture capital managers, according to "The Private Path to Latin America's Most Dynamic Sectors," a new report from global investment firm Cambridge Associates.

"The Latin American middle class is on course to comprise 40% of the region's population by 2030 and this demographic is increasingly demanding higher-quality products and services," says Iñigo Garcia, Investment Director at Cambridge Associates and co-author of the report. "Sectors such as healthcare, education, and information technology are benefiting directly from these trends and are in fact growing at a rate well above the overall Latin American economy."

Among the report's insights regarding the private investments opportunities in Latin America:

  • Latin America has a deep bench of privately held lower-middle-market companies, which private equity managers typically buy or provide capital to in order to create returns for their investors. According to the report, there are over 130,000 lower-middle-market companies in Latin America; they compose more than 80% of private sector economic activity and are responsible for 60% of the region's GDP.

  • A sector that has attracted private capital but still has room for growth is healthcare. Almost $1 billion of private equity investments went to Latin American healthcare companies in 2015. In Brazil alone, 28% of all private equity capital invested last year was in the healthcare space. But overall healthcare spending across Latin America lags significantly behind most developed countries, underscoring that industry's growth potential in the region.

  • Venture investments in the region, from both global and regional venture capitalists, increased almost tenfold between 2010 and 2015 -- from $63 million to almost $600 million -- according to the report. These investments may be in response to the growth of mobile access and smartphone users in the region -- by 2012, 98% of the Latin American population had a mobile signal -- and also in anticipation of the expected growth of ecommerce and online ad spending in countries like Mexico and Brazil.

There are certain considerations that institutional investors should bear in mind when reviewing private equity and venture capital opportunities in Latin America:

  • Key factors that may affect a Latin American private investment program are exchange rates and currency fluctuation. Historically, currency swings have been a negative for USD investors -- though some years have seen appreciations that have been positive for the dollar. Currency exchange would have benefited investors in funds raised between 2000 and 2006, for example. Says Garcia, "As with all private investment strategies, investors in Latin America benefit from maintaining a long-term view and consistent exposure, as opposed to pursuing exposure sporadically or opportunistically."

  • There is a wide spread between the best- and worst-performing managers in Latin America. Between 1998 and 2010, top quartile manager returns in the region outpaced median returns by over 1,000 basis points on a net internal rate of return (IRR) basis. "While manager selection is always important in private investments, this spread is larger than in more developed economies such as the U.S., making careful manager selection crucial for success in Latin America," adds Garcia.

  • Returns for both local and global funds have been modest overall, but "local" managers -- those with funds, teams or resources dedicated solely to Latin American investments -- have demonstrated an ability to beat global managers. On average, investments by local funds have outperformed by 0.3X-0.5X turns of gross multiple on invested capital their global peers, or "fly-ins," according to the report.

"For investors seeking regional diversification and differentiated exposure to emerging markets, Latin American private equity and venture capital is worth a closer look," says Andrea Auerbach, Managing Director at Cambridge Associates and co-author of the report. Auerbach will deliver the keynote address at the Annual LAVCA Summit & Investor Roundtable on Wednesday, September 28 in New York, NY.

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing: Millennium hedge fund ups bet against Bank of Ireland, Value rotation was the last thing big funds thought would happen, Al Gore's firm sold Amazon and Microsoft stock. Here's what it bought.[more]

    Millennium hedge fund ups bet against Bank of Ireland From Independent: US hedge fund Millennium International Management has raised its bet against Bank of Ireland's shares. It comes as Davy says 2020 will be a write-off for banks, with losses across Irish lenders of €4bn. M

  2. PE/VC: Private equity in the Covid-19 crisis, Carlyle's Africa dealmakers leave to start their own buyout firm, UK asset managers plan shift to off-market strategies including private equity[more]

    Private equity in the Covid-19 crisis From Morning Star: Private equity investment trusts invest in unquoted companies not yet listed on the stock market. How have they fared in the sell-off? Investment trusts have been caught up in the market turmoil of recent months and private equit

  3. New Launches: Apeira Capital seeks $200m for hedge fund-like bets, PIMCO filing reveals ESG fund launch could be ahead, BEA Systems co-founder launches venture fund, Salesforce Ventures launches $125m Europe Trailblazer Fund, The D. E. Shaw group closes first onshore China investment fund, Legg Mason and ClearBridge launch non-transparent ETF, Hong Kong-based asset manager MaiCapital launches actively managed bitcoin hedge fund[more]

    Apeira Capital seeks $200m for hedge fund-like bets From Bloomberg: Natalie Hwang, the former head of Simon Property Group Inc.'s venture capital arm, has launched a new firm and is seeking $200 million for a debut fund. Hwang has been discussing the vehicle with prospective investors, ac

  4. New Launches: Hedge fund Angelo Gordon raising $1.5bn for distressed energy debt, Amundi unveils eight new funds as part of ESG ETF range push, Mezzanine Management gears up for direct lending fund[more]

    Hedge fund Angelo Gordon raising $1.5bn for distressed energy debt From Reuters: Hedge fund Angelo Gordon & Co aims to raise as much as $1.5 billion to buy the debt of distressed oil and gas companies, according to a person familiar with the matter and an investor presentation viewed by R

  5. Tech: Robos fail their first big test, 'Video is fine': Venture capitalists find the benefits in digital due diligence[more]

    Robos fail their first big test From Advisor Perspectives: Robo-advisors faced their first big challenge with the bear market in the first quarter of 2020. They lost, and that is an ominous sign for the future of automated advice. All robos employ a degree of active management. They