LatinFinance - March/April 2015 - 65

still proves a challenge. "At traditional
European or US buyout houses, limited
partners do not have a say in the investment
policy, strategy, or decision-making
process," says Carlos García, managing
partner of South America-focused private
equity firm Victoria Capital Partners.
In contrast, "you've seen a lot of
Brazilian pension funds demanding an
active participation in the management of
the investment strategy," he says.
Elsewhere in Latin America, regulations
capping allocations to alternative assets,
particularly for pension funds, have also
been a problem. "So many restrictions
around private equity and alternatives
means it is not easy to get investment
done," says Ricardo Morales, co-founder of
Andean asset management and advisory
firm HMC Capital.
Similarly, Coller Capital's Morgan says
that regulations around documentation,
domicile of operations, and fund structure
limit opportunities for Latin American
investors to place money in global private
equity funds.
"The main thinking for all pension plans
in Latin America is that it is a kind of money
that you cannot lose, or you shouldn't
lose," says Flavio Peppe, a Brazil-based
partner at Ernst & Young. "That is why
they are very careful and [regulators are]
restrictive so they can avoid investment
managers doing something wrong with all
of this money."
In many parts of the region, regulators
have been relaxing investors' constraints
over alternatives.
In recent years Colombia and Peru
have increased the limit for pension
fund investments in alternatives assets,
including private equity, real estate,
infrastructure, and hedge funds. Mexico,
too, has sought to make it easier for local
pension funds to invest in private equity,
although they are not yet permitted to do
so internationally. Meanwhile, Chile has
simplified regulations covering private
equity and venture capital.
Philip Fitzgerald, chief executive of
Jamestown Latin America, a US-based firm
real estate investment company, describes
a virtuous circle developing. "I expect to
see [regulations] continue to liberalize,"
he says. "And as the pension fund
managers get more and more experienced
and get a greater depth of knowledge, I
would expect to see them investing more
in alternatives and to see the regulators
allow them to do that more."

Developing industries
Regulators are increasing alternative
allocation limits, in part, as institutional
investors struggle to reap returns from
traditional assets such as regional
public equities and bonds. Bret Rosen,
a managing director at Jamestown Latin
America, points to a dearth of locally listed
companies. "You're not seeing a lot of
public equity activity that would have given
the pension funds more assets to invest
in," he says. "Regulators are aware of this,
pension funds are pressing on this and you
see this trend to allow the pension funds to
not just invest in infrastructure, real estate
and private equity but to invest outside
their countries."
In turn, private equity sponsors from

needed expertise, she implies. The single
biggest obstacle to investing, according to
more than 60% of respondents to LAVCA's
September survey considering their first
commitment to Latin American private
equity, is the limited number of established
managers in the region. But Ambrose
says the industry is evolving rapidly, in
large part due to increased international
participation.
"The private equity and venture capital
community in Latin America has become
increasingly sophisticated in recent years,"
she says. "Not only are international
[private equity] investors growing their
Latin America teams, but local investors are
increasing their allocations to alternatives,
creating a dynamic environment for

Billion-dollar players
Latin American pension and insurance alternatives allocations over $1 billion
Investor

Type

Country

Total assets ($ m)

Allocation ($ m)

Private equity
Petros

Pension

Brazil

25,104

2,259

Protección

Pension

Colombia

32,000

2,080

Funcef

Pension

Brazil

17,974

1,977

Provida

Pension

Chile

48,462

1,938

Porvenir

Pension

Colombia

33,000

1,650

Funcef

Pension

Brazil

17,974

2,031

Consorcio

Insurance

Chile

8,000

1,680

Petros

Pension

Brazil

25,104

1,130

Real estate

Infrastructure
Funcef

Pension

Brazil

17,974

1,270

Source: Prequin

outside the region are contributing to the
action. In November, for example, US
private equity firm Advent International
reported that it had raised $2.1 billion in
commitments, making it the biggest ever
Latin America-focused private equity fund.
Three-quarters of the capital came from the
US and Europe, with the majority aimed at
Brazilian investment.
International interest is an important
driver for the industry as a whole. Cate
Ambrose, president of LAVCA, is hopeful
that outside funding will encourage more
Latin American investment professionals
(including those working at US or European
firms) to launch local funds. Those funds,
in turn, will attract investment from local
institutional investors.
Such momentum could encourage much

fundraising and investing."
Wider government reform in Latin
America - for example, Mexico's moves
to liberalize its energy sector - is therefore
a crucial driver of local alternative
investment industries.
"There's an overtone of trying to figure
out what is holding [Latin America] back,"
says Michael Rogers, private equity leader
for the Americas at Ernst & Young. "What
can we do to get more people employed?
What could we do with other countries
that are positioned alongside us?
"Part of that reform is looking at the
outdated pensions and investments
policies some of these governments have
had," says Rogers. "The opportunity is
there to ease into this, and allow greater
investment." LF
March/April 2015 - L ATINFINA NCE.COM 65
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