Private Equity in Latin America: The Mexican Case

Private equity investing first took off in Latin America in the wake of the debt crisis of the eighties, when global banks that had been active in the region found themselves holding a significant amount of non-performing loans and had to accept equity stakes in local companies in exchange for their loans.

Private equity investing in Latin America grew exponentially, fueled by the new investing opportunities created by the extensive macroeconomic and regulatory reforms introduced in the early nineties. Latin American private equity funds raised almost US$15 billion between 1992 and 2000, mainly from institutional investors in the U.S.

GEOGRAPHIC CONCENTRATION OF THE INVESTMENTS: THE CASE OF MEXICO

Despite their broad regional scope, most funds have focused their activities in three countries: Brazil, Argentina, and Mexico, which together account for more than 95% of the investment in the region since 1992.

Although Mexico has been one of the main recipients of private equity investment in Latin America, it has traditionally lagged behind Brazil and Argentina. Industry analysts seem to agree that Mexico has received less investment than what the size of its economy might suggest relative to the other economies in the region.

Sources estimate total investment in the country to be around 20% of total private equity investment in Latin America. Based on its share of regional GDP, however, Mexico would be expected to attract around 37% of such investment.6 Investment has lagged even when Mexico’s macroeconomic prospects have been the best in the region, due to its extensive and comprehensive set of liberal reforms, the healthier fundamentals of its economy, and the trade benefits that derived from NAFTA.