(Global Investor) Investors see Latin America as an increasingly attractive region for private equity, according to the latest annual Coller Capital Latin American Venture Capital Association (Lavca) Latin American Private Equity Survey.
The survey of 105 private equity investors from around the world found that Mexico, Peru and Colombia were seen as the most attractive countries for investment, from a risk/return point of view, over the next two years, with Brazil viewed as “more challenging”.
Investors are also looking for higher returns, with more than half (56%) expecting a return of 16% or more from the region. The survey found around half of LPs expected returns of this level from Brazil and Chile, while almost three quarters expected such returns from Mexico, Peru and Colombia.
Erwin Roex, senior adviser at Coller Capital, said: “These findings are a strong endorsement of the private equity opportunities in Latin America.
“Despite economic challenges in individual markets, the region retains its attractiveness to both domestic and international LPs, and this is reflected in very strong return expectations. The newer PE markets of Mexico, Peru and Colombia are seen as particularly exciting.”
In terms of investment flows, over a third (35%) of investors expect to increase allocations to Latin American private equity, with 39% looking to make investments in Mexico within three years – up from 15% today.
The survey also found a split between domestic and international attitudes to investments, with domestically-based LPs viewing manufacturing/logistics and real estate as attractive sectors, while international LPs have concentrated on the oil and gas sector, although both agree that consumer goods and retail sectors will grow in attractiveness over the next three years.
The majority of investors (59%) access the region via pan-regional funds, set to rise to 70% in the next three years.
The survey also found investors do consider ESG issues when investing, with three quarters saying ESG factors “materially impact” fund selection, while over a quarter (28%) have ESG-based restrictions on their investment mandates.
Cate Ambrose, Lavca president, said: “The survey results demonstrate that LP views on the region continue to evolve. Over time, investors are reaching a more sophisticated understanding of the opportunity that Latin America presents. The findings point to confidence in the mid- to long-term expectations for PE markets across the region.”