The missing link: LatAm lacks gatekeepers, consultants and intermediaries
By Paul Mackintosh - 30/09/13
Coller Capital and the Latin America Venture Capital Journal (LAVCA) have just released their joint Latin American Private Equity Survey 2013 – which, bear in mind, is not a survey of Latin American (LatAm) private equity (PE) general partners (GPs) and limited partners (LPs), but of investors worldwide in LatAm funds, some 105 of them. And allowing for the obvious sampling error from a sample base 31% headquartered in LatAm, and otherwise committed to the region, there is enough enthusiasm and understanding on display to make the findings an interesting snapshot of LP investment in one of the world's other great emerging markets.
Already, 35% of LPs currently committed to LatAm funds plan to up their allocations, with 53% planning to keep commitment levels the same, and only around 4% planning to significantly curtail their LatAm exposure. The main driver is simply high expectations of returns: 88% of LPs expect net annual returns of 11% or greater from LatAm funds over the next three-to-five years, and 56% have still higher expectations of net returns of at least 16%. And as with its rival region Asia Pacific, LatAm is attractive because of its growth: around 63% of the surveyed LPs list macroeconomic growth as the most significant attraction of the region, though this figure has pulled back by almost 10% since last year's survey. Availability of deal flow, which level-pegged growth as an attraction in 2012 with 72%, has pulled back this year to just under 50%, though.
Indeed, almost all the LPs now rate the key draws to the region as far less attractive this year than in 2012, with the immaturity of the region's PE industry the least attractive, rated as unattractive by 40% of the sample. Around 35% of the poll also rate the supply of established and investable GPs as unattractively limited. This is also the principal worry of LPs considering their first commitment to LatAm within the next five years: around 74% of investors in this category consider a shortage of GPs to be the major stumbling block. It's probably no surprise then that 52% of LatAm-headquartered LPs in the survey have invested in a GP's first fund within the past 18 months. But international LPs looking for an easier and lower-risk entry point for investing in all that LatAm growth may have to wait a while longer: 90% of the poll, both LatAm and international, said they had never used a gatekeeper, consultant or intermediary when investing into a LatAm fund. Sounds like an opportunity for somebody.