Firms prep pools for hot Latin America fundraising market

  • LatAm PE fundraising broke records in 2014
  • South Cross, Vinci Partners prep two large LatAm funds this year
  • LPs remain cautious on the region

This year, several firms are preparing to bring big funds to the Latin American market that, despite slow growth in the region, appears to be ripe for investment.

Two of the biggest funds expected back in the market soon are Southern Cross Group and Vinci Partners. Southern Cross will target between $1.5 billion to $2 billion for its fifth fund, three sources told Buyouts

The firm closed its fourth fund on $1.68 billion in 2010 and it was generating an 11.8 percent IRR and a 1.2x multiple as of Sept. 30, 2014, according to the Washington State Investment Board.

Southern Cross Latin America Private Equity Fund III, which raised $751 million in 2007, was producing an 8.5 percent net IRR and a 1.4x multiple as of Sept. 30, 2014, according to the California Public Employees’ Retirement System (CalPERS).

The firm could have a tough time hitting its target as the performance of funds III and IV is not spectacular, two LP sources said. We think “Fund IV got too big for the opportunity set,” one of the sources said.

Southern Cross did not respond to a request for comment.

Another big LatAm pool is expected to come this year from Vinci Partners. It is believed to be targeting between $1.2 billion and $1.5 billion for its third fund. Vinci closed its second fund on $1.4 billion in 2011 and raised $600 million for its debut fund in 2004, according to its website.

Vinci’s second fund was generating a 5.2 percent net IRR and a 1.1x multiple as of Sept. 30, 2014, according to CalPERS.

Vinci did not respond to a request for comment.

Small is good

Some smaller pools of capital in the market are also generating buzz in the LP community. Among them is Linzor Capital Partners, which has been targeting $600 million for its third fund. Linzor has had strong response from LPs and its fundraising is expected to close soon, two LPs said.

Linzor’s Fund II, which closed on $465.3 million in 2011, was generating a negative 2.5 percent IRR and a 1x multiple as of Sept. 30, 2014, according to alternative assets data provider Bison.

One new player in the market is Australis Partners, a spin-out from Citi Venture Capital International. Australis is targeting $350 million for its debut fund and has hired Park Hill Group to run its marketing process, two sources told Buyouts in prior interviews. It’s not clear what kinds of investments Australis will focus on, though one source said the firm will target family businesses.

Where to?

With more money flowing into the region, the obvious question is: how will managers spend it? Because of the slow growth in the region and the weakness of currencies in the various countries, GPs may be able to buy great companies for low prices, said Cate Ambrose, president and executive director of the Latin American Private Equity & Venture Capital Association.

Falling valuations can indicate greater risk, however, according to LAVCA’s most recent newsletter published on March 18. “Let’s not lose sight that most of the LPs are dollar-denominated,” said the newsletter, citing a manager in the region. “They want their dollars back with the adequate return. Volatility makes investment decisions more complex. The natural consequence should be a reduction in asset prices to compensate for the increased risk.”

While several funds are generating strong demand in the market, not every LP is convinced Latin America is a necessary part of a private equity portfolio.

“Some people will lower their bar to get into the best things available, but Latin America is just not getting me there,” said one LP who has been tracking managers in the region for several years. “Why take on all this emerging-market risk, (such as) capital market risk, political risk? Why do that if our expected return is the same as a buyout fund in New York or Chicago?”