In February I headed to a conference in Hong Kong organized to promote investment between Asia and Latin America. I wanted to get a better understanding of what kinds of Asian investors are looking at LatAm, and whether they are ready to commit to private equity funds.
The increase in South-South capital flows and the growing influence of Chinese investors in Latin America is a reality that can’t be ignored. But are the Chinese and other Asian institutional investors looking to become limited partners in private equity funds? And what are their goals as investors?
A short list of Latin American GPs has met with Chinese sovereign wealth funds including CIC, CITIC and the Hong Kong Monetary Authority in recent months. A veteran manager who is currently marketing his fourth fund explains that while he didn’t intend to go to Asia as part of the fundraising effort, Australian pension funds and US endowments and foundations are overcommitted to PE and not making new commitments. So he sought out a placement agent that could help the firm access investors in Asia.
I heard a variation on that theme from the head of an Andean investment bank/asset manager who attended the Hong Kong conference. His firm has a long track record of raising money from local institutional investors in Chile, Colombia and Peru, but the competition to raise capital in those markets has intensified significantly in recent years. He was in Asia to explore opportunities to diversify the investor base.
Among the region’s sovereign wealth funds, Singapore’s GIC and Temasek were first movers into Latin America, both as LPs and direct investors. GIC has backed some of the most successful funds in the region, and Temasek opened offices in Brazil and Mexico in 2008, hiring locally and moving a senior executive from Singapore to Sao Paulo.
In contrast, Chinese SWFs are only now intensifying their due diligence and apparently have not made any PE commitments to date, although CIC executives have made multiple trips to Latin America to meet managers over the last year.
Most of the investors I met in Hong Kong represent private Chinese family and business groups that have accumulated remarkable wealth over the last decade. As the number of billionaires on the mainland continues to multiply, a booming industry of investment advisors and family offices has emerged in Hong Kong to help new HNW deploy their capital.
Today at least, these groups are not aiming to maximize financial returns by acting as limited partners in private equity funds. They are looking to Latin America as a region rich in the resources their companies need in order to sustain double or triple digit growth rates, and as a market where they might expand their own business networks.
“Many Asian family offices focus on investment approaches that fit more than a financial returns’ thesis, but also strategically link sectors and business group relationships between Asia and Latin America,” comments Suneel Kaji of TRG Management, who works out of Hong Kong and New York and targets mid-cap private equity through regionally focused funds. The firm also has a LatAm dedicated team.
Maninder Saluja, who recently relocated to Hong Kong with Quilvest, a global fund of funds and direct investor, concurs: “From what I have seen, there is an increasing amount of interest from Asian based LPs in investing in Latin America. Institutional groups are looking to Latin America for both diversification as well as a correlated play on Asian growth.”
Wye Tak of Cheong Yue International Group, a Hong Kong-based group with high net worth and corporate clients in China and the Middle East who was among the investors I met at the conference, expressed a similar idea.
“I anticipate that Latin America will play an important role in the future for globally distributed products and raw materials. There are a large amount of attractive investment opportunities in the region for us now especially in Brazil, Mexico and Argentina. We are keen to form strong partnerships with local companies and entrepreneurs to pursue opportunities in agriculture and construction sectors.”
As Chinese groups target strategic investments in Latin America, investors on both sides will need to narrow the cultural chasm resulting from a lack of information and outdated perceptions.
“Chinese investors’ understanding of Latin America is somewhat limited to Brazil at this point, given that it is the largest, most active and perhaps the most promising of markets,” comments Saluja. “The history of changing political regimes, hyper inflation and recurring debt crises still influences the views of many Asian LPs.
Bee Chun Boo, a partner with Baker & McKenzie in Bejing who I met with on my trip, agrees. She has worked on many cross border China-LatAm deals, and points out that concerns over political risk are still an important issue for her Chinese clients.
At least one firm has been set up specifically to address this cultural gap – Shanghai-based SinoLatin Capital, a merchant bank which targets cross border transactions between China and Latin America through financial advisory and private equity platforms. Partner Jorge Barreda describes a focus on oil&gas, mining and agribusiness as a reflection of client demand. He is confident that the firm is well placed to play a role in introducing Chinese investors to the reality of Latin America today.