Coral Gables, FL, February 2, 2005 – Beyond the headlines of economic crises and major investor losses, the successful track records of many of Latin America’s top venture capital and private equity fund managers go curiously unnoted. For top performers such as Darby Overseas Investments, Advent International, ZN Mexico, Conduit Capital Partners and AIG Capital, this year’s Economist Conference on Latin American Private Equity offered a public forum for exploring the quiet recovery currently underway in the region.
“In 2005 institutional investors have returned to the conference, and several came to meet with fund managers. Investors seeking out exposure to emerging markets private equity are finally willing to give Latin America another chance,” said event chairman Cate Ambrose.
Ms. Ambrose noted that volatility has decreased in markets like Mexico and Brazil, and competition for deals in Latin America is generally less intense than in China or Russia. And while many players have been discouraged by Latin America’s track record for private equity returns, those in the know say a closer examination reveals that a number of funds have had long-term success in the region.
“Global players haven’t heard enough about the high returns that are possible in Latin America. Without knowledge of regional success stories, investors can be wary of committing to the region,” said opening speaker Richard Frank, CEO of Darby Overseas Investments and Chair of the Latin American Venture Capital Association (LAVCA). “The experience of Darby and some of our colleagues in the industry has been quite positive. We need to better document activity within the region and convey our story more effectively to the investor community.”
The losses suffered by many funds in recent years were not reflected in the experiences of fund managers presenting at the conference. Darby reported four successful exits from its private equity and mezzanine funds in 2004. Luis Harvey of Nexxus Capital presented the high returns to investors yielded from their first fund managed jointly with Zephyr, ZN Mexico Trust I, and highlighted the positive results to date of the second ZN Mexico fund.
Of particular interest to participants were the five venture-backed Latin American IPOs of 2004, which included the highly successful offerings of HOMEX—financed by ZN Mexico—and Gol Aerolineas—financed by AIG Capital Partners.
Funds with quality management teams and deep local expertise have demonstrated strong staying power and have encouraged the entry of new players. The Carlyle Group recently opened an office in Mexico, staffed with a local management team chosen for the depth of its expertise within the Mexican market. And institutional investor CalPERS has dedicated US$30 million to Latin American venture capital in 2005, with US$17 million allocated to Mexico.
“Some ask why CalPERS as a global player is active in Latin America when there are high returns in Asia,” said CalPERS Portfolio Manager Joncarlo Mark. “The answer is that Latin America does offer opportunities for significant returns, and as a global player we are strengthened by our involvement in all regions.”
Another benefit to having a quality management team emerged during the conference–better returns. Cynthia Hostetler, Vice-President of Investment Funds for the Overseas Private Investment Corporation (OPIC), stated that OPIC has consistently found the quality of fund managers to be critical to fund performance. Ms. Hostetler noted that, regardless of region or market maturity, significantly higher returns are produced by top quartile fund managers in comparison with those in the lowest quartile. OPIC, one of the largest equity investors in emerging markets and a LAVCA Advisory Board member, has invested US$800 million in Latin America over the course of its investment program, with US$250 million of that invested in four funds in 2004 and early 2005.
Conference presenter Álvaro Gonçalves, partner and director of Stratus Investimentos and President of the Brazilian Venture Capital and Private Equity Association (ABVCAP), said he felt Latin America deserved better consideration based on the concrete results of dependable fund managers such as Advent International, one of many who remained consistently active in the region despite difficult times.
“In the region’s peak allocation in the late 1990s, investors didn’t always choose disciplined, committed players, as the private equity business requires,” said Mr. Gonçalves. “In many cases, elected fund managers acted as aggressive cowboys, driven by high profile transactions. Many disappeared after the first signs of difficulty and tried to blame the region for their failures. Such cases unfortunately drove a negative perception, but there are many successful cases now available for assessment.”
Christina Kappaz, LAVCA Executive Director, added that conference participants were generally optimistic on the region’s future prospects. “Analysis of Latin American private equity often fails to take into account that the industry is just completing its 1st cycle of industry maturation, while the U.S. market is in its 5th cycle and Asia in its second or third,” said Ms. Kappaz.
The emergence of venture capital associations at the national and regional level in Latin America is a positive sign of the maturation of the industry, noted Susana Garcia-Robles, an Investment Officer with the Inter-American Development Bank’s Multilateral Investment Fund. The MIF, which has committed over US$300 million in investments to venture capital funds in the region, is supporting efforts of associations such as LAVCA to facilitate networking, undertake research, and provide education to industry players.
Many of the next steps identified by conference participants for sustaining the industry’s positive growth are priority actions for LAVCA in the coming year, noted Ms. Kappaz.
“We see 2005 as a particularly critical year for promoting the industry’s growth, given the global recovery and regional momentum on many levels,” said Ms. Kappaz. “In 2005 LAVCA members will be at the forefront of a variety of research, networking, and information-sharing initiatives, as well as highly visible promotion of industry success stories to international investors.”
LAVCA’s mission is to promote the growth of the venture capital and private equity industry in Latin America and the Caribbean through research, education, networking, best practices, and the advocacy of sound public policy. LAVCA is a not-for-profit trade association serving a core membership of venture capital and private equity firms that invest in emerging companies in the region.
For more information on LAVCA and its activities please visit www.lavca.org.
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