Latin Finance - July/August 2011 - 44

european private equity

Let’s Try That Again
by Jef Cozza atAm’s macroeconomic growth story over the last several years is now a familiar one. But for European investors seeking exposure to the growing class C, as the region’s middle class segment is called, options are limited. Private equity is often the best and sometimes only way of fulfilling such needs and as a result is generating considerable interest among Europeans. “The stock exchanges are quite small, and there’s not lots of listed companies on them,” says Sven Soderblom, a partner with Spanish firm Arcano Group’s asset management division which is also involved in private equity. Arcano has about $1.4 billion assets under management, with about 10%-15% in LatAm. Most exchanges in LatAm still tend to be heavily weighted toward companies in the natural resources sector, and offer little in the way of consumer and retail exposure. “If you want to access the growth in the middle class, the best industries to be in are consumer and retail,” says Alvaro Gonzalez, investment director responsible for LatAm with Altamar Private Equity, a Spanish firm. “These companies are very difficult to find in the public markets. So that’s why private equity is, I wouldn’t say booming, but there is a lot of interest.” The relative dearth of public equity opportunities in sectors tied to middle class consumption is leading to increased interest among institutional investors for LatAm private equity. Although the asset class continues to be dominated by US-based funds, European GPs are increasingly looking at the region as well, according to Miguel Zurita Goñi, partner with Spanish PE firm Mercapital, which manages 1.4 billion euros. “We definitely see an increase in [interest in] Latin America, but not just from private equity firms, but from

L

European funds are increasingly eyeing LatAm PE in an effort to gain exposure to the growth in middle class consumption. But can they avoid the mistakes of the past?
Cate Ambrose, president and executive director of the Latin American Venture Capital Association (Lavca) echoes such sentiments. “There are very limited opportunities in [Europe’s] domestic markets to invest in growth. In terms of growth, Latin America is quite attractive as compared to the kinds of opportunities they might see at home,” she says. The perception that LatAm is now more stable, both politically and economically, on a long-term basis, is also driving interest in the region among European GPs. “I would go so far as to say that the tables have turned with regard to asset classes and destinations for investment and uncertainty,” says Rupert Hayward, director, Salamanca Capital Investments. Salamanca raised a 500 million euro global real estate fund in 2007 that has invested in Brazil and Poland. “Brazil has become very stable, far more predictable with regard to where people see it going in the near to medium-term future.” But while the region has seen significant increased investment from public equity and fixed-income investors, the private equity asset class is only now just starting to bloom as investors establish a history in LatAm. Private equity funds, with investment horizons that can stretch many years, are particularly sensitive to the need for long-term trends in politics, inflation and sustainable GDP growth. That level of macroeconomic stability is still relatively new in LatAm.

Fund-of-funds strategy makes sense: Soderblom

investors and corporates in general,” he says. Two factors are driving the region’s appeal, namely decreasing GDP growth in Europe and a growing belief in the longterm macroeconomic stability of LatAm. “There were plenty of opportunities in Europe until recently,” Zurita explains. “There was a lot of low hanging fruit.” Since the crisis, however, relative expectations for GDP growth have inverted. According to the World Bank, the eurozone economies are collectively expected to grow at only 1.7% in 2011, while LatAm is expected to grow at 4.5%. “In Europe the growth scenarios are very low,” Gonzalez says. “They’re certainly not going to benefit from 5%-6% growth in Round Two the economy, and that’s what they’re going Although many European funds are scouring the region for the first time, many to try to look at in Latin America.”

44 LatinFinance

July/August 2011
Latin Finance - July/August 2011

Table of Contents for the Digital Edition of Latin Finance - July/August 2011
