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Fund managers in North America and Europe are increasingly targeting investments in Central America, where businesses are developing closer ties with trading partners in the U.S. and Europe. Private equity firms based in the U.S., Europe and Canada are now raising money to invest in businesses in Costa Rica, Nicaragua, Guatemala, El Salvador and elsewhere in Central America.

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Capital Flowing Into Central America

July 7, 2006 — Fund managers in North America and Europe are increasingly targeting investments in Central America, where businesses are developing closer ties with trading partners in the U.S. and Europe.

Private equity firms based in the U.S., Europe and Canada are now raising money to invest in businesses in Costa Rica, Nicaragua, Guatemala, El Salvador and elsewhere in Central America.

Darby Overseas Investments, for example, is working to line up $90 million to invest in several countries in the region, just five years after the Washington firm raised $150 million for its second Latin American fund.

The current vehicle, Darby ProBanco Fund 2, will back banks and other financial-services companies in Central America, as well as in the Dominican Republic, Panama, Mexico and Columbia. The firm’s 2001 vehicle, Darby-BBVA Latin American Private Equity Fund, took stakes primarily in companies in Mexico and Brazil — countries with more developed economies that have historically absorbed much of the private capital flowing into the region.

London-based Aureos Capital is currently marketing a $25 million vehicle, the Aureos Central America Growth Fund, that will back small companies in the region. In 2002, Aureos raised $36 million to invest in Central America, and says that fund is returning 40% on investment after its recent first exit. Its planned fund is expected to close at the end of this month.

The U.S. government is backing some funds as a way of promoting the Central American Free Trade Agreement (Cafta), which was adopted by the U.S. last year and has been embraced by a majority of countries in the region.

The Overseas Private Investment Corp., a U.S. development agency, is committing $45 million to the Darby fund. OPIC typically starts funds and hires private managers to raise additional private capital for the vehicles and then run them.

The agency will also supply $80 million of the $250 million being raised by AIC International Investments, a Canadian asset manager, for its AIC Caribbean Fund. The fund will back businesses in the Dominican Republic, which is a party to Cafta, among other Caribbean nations. AIC is expected to take stakes in companies in the tourism, telecommunications, healthcare, energy and financial-services sectors.

“We want to support the Cafta agreement and bring investment and new jobs to the region, and we don’t currently have any exposure to the area because it’s been difficult to raise funds in the Cafta region in the past,” said Cynthia Hostetler, a vice president for investment funds at OPIC.

But investors say they believe the trade agreement is already starting to loosen capital flows to the region.

“Investors are just starting to view Central America as a bloc,” said Ramona DeNies of the Latin American Venture Capital Association. Private equity funds are investing primarily in the construction, real estate and tourism industries, typically providing expansion capital.