Nearly two years after being hired away from Chase Capital Partners by rival investment-banking group Baring Private Equity Partners, Varel Freeman now feels all the pieces are in place to commence fund-raising efforts for Baring Latin America Partners I. The inaugural investment vehicle will be marketed with a $250 million-to-$300 million target capitalization, and is expected to hold a $100 million to $150 million first close by year-end.
Unlike other first-time funds, Freeman’s new venture has a bit of a track record thanks to an initial investment of $45 million from parent company ING Group. Thus far, the group has spent $40 million of its allocation on eight portfolio companies, including ECOutlook.com, MasterSAF and SkyAuction.com.
“In essence, we’ve taken the last couple of years to put together a team and demonstrate our ability to generate deal flow and to make strong investments,” Freeman said. “Now that we have something more definitive to show people, we’re going out into the marketplace to attract third-party investors.”
Thus far, the firm has had preliminary talks with a handful of potential investors from the classic limited partner pool of pension funds, endowments and insurance companies. Unlike many cross-border funds, Baring Latin America Partners is not expected to use geography as a litmus test when it comes time to accept or reject LP commitments.
“We need to be mindful of not becoming the venture capital arm of some large Brazilian or Mexican company,” Freeman said.
Also important for the new fund will be identifying potential investments that feature foreseeable liquidity opportunities. A number of players in the Latin American market have recently been burned by cash-strapped local markets and the continuing difficulty in pushing mediocre companies public on the New York-based stock exchanges.
As such, Baring Latin America Partners plans to invest only in companies which it legitimately believes will have liquidity options within two years. Freeman broadly defined such companies as growth-stage plays, but said early-stage companies could be considered so long as they had an actual product and revenue. Moreover, the fund’s guidelines also include provisions for management buyout and PIPE transactions, including the possibility of taking some family companies private.
“The primary reason for our short-term approach is that Latin American markets historically open and close and, over a protracted period of time, some people have had a very difficult time trying to get out of investments,” Freeman said.
Once it holds a first close, the fund plans to invest between $5 million and $30 million over the life of its portfolio companies. Typical investments will likely be in the financial services or software sectors with Brazilian and Mexican firms being primarily targeted.
Baring Latin America Partners currently employs 10 private equity professionals spread among its Mexico City, New York and Sao Paulo offices.