Last month LAVCA released the 2013 Scorecard on the PE/VC Environment in Latin America, and the results appear scripted to reflect recent headlines from business and mainstream media: Mexico, Colombia and Peru are the investor favorites.
Mexico a country that has attracted outsized attention on positive macroeconomic trends and expectations of reforms under a new administration, increased its overall score in the LAVCA Scorecard thanks to an increase in the indicator on entrepreneurship. The entrepreneurship indicator is based on quantitative measures (including the World Bank’s Doing Business Reports), and qualitative input from investors and experts.
This week LAVCA is collaborating with Mexican PE/VC Association AMEXCAP to host an event in New York for institutional investors seeking insights into PE/VC, infrastructure and real estate opportunities in the country. LP response to the invitation was strong, particularly as compared to two or three years ago when investors shunned Mexico for Brazil.
Colombia also improved its score on entrepreneurship in the 2013 Scorecard. The country is awash in public and private sector investment capital for everything from infrastructure projects to tech startups, and while it is still very early days for Colombia’s VC industry, the country has produced a handful of standout entrepreneurs who are expanding regionally and globally (see ‘Growth Capitalism’).
Peru is the other important story from the 2013 Scorecard, thanks to an increase in the indicator measuring “restrictions on local institutional investors investing in PE/VC”. In this case the score is returning to where it was in 2010 before financial regulators imposed a 3% cap on commitments to PE; under a broader 2012 pension reform, Peruvian AFPs can now invest up to 15% in domestic and international PE.
From a broader investment perspective, Peru’s economy is projected to grow around 6% in 2013, and regional and global players are actively searching for Peruvian deal flow – last year Carlyle staffed a local office in Lima.
But while the overall policy environment is increasingly investor friendly, the country lacks specific support for the development of PE/VC – Brazil, Mexico, Colombia and Chile all host targeted programs through development banks or government agencies. And industry-specific tax and fund laws are also lacking. This year LAVCA will be championing greater support for PE/VC in Peru through the work of the association’s Andean Council.
While Mexico, Colombia and Peru saw improvements in the 2013 Scorecard, Chile and Brazil held on to the first and second place rankings respectively for the eighth year running—since the Scorecard was first published.
(LAVCA is hosting the fourth annual Chile Forum on May 29)
Chile’s overall institutional framework and pro-trade policies are a model for the region, and more recently the country has attracted hundreds of global entrepreneurs through the Start Up Chile program—an initiative that is now being replicated in Brazil, Colombia and Mexico. Entrepreneurs overwhelmingly migrate to other markets to grow their ventures once they complete their six-month tenure at Start Up Chile, and the jury is out on how many sustainable businesses will ultimately emerge, but the program has done a great job of promoting entrepreneurial culture in a traditionally risk-averse society.
And Brazil, a country that herd mentality and media today are condemning as slow growing, insular, expensive, overcrowded, and in need of reforms, still has many of the best PE/VC specific regulations and programs in Latin America, or all developing economies. The country’s first fund laws were passed almost 20 years ago and pension funds have been backing first time managers since the year 2000, so inevitably Brazil’s PE industry is a decade ahead of the rest of the region, with a far deeper pool of proven investment teams and a much larger stock of companies that are ready to work with PE investors to build value and manage a successful exit.