LatinFinance - September/October 2015 - 16

"For Brazil, even compared to Brazil's past experience, this is
definitely a game changer," says Rodolfo Spielmann, head of Latin
America for the Canada Pension Plan Investment Board.
"I would even dare to say it's an inflection point in how the private
sector deals with the private sector, but mostly with the public sector
and with state-owned companies and regulatory agencies."
Brazil may be the most prolific example. But across Latin America
the specter of corruption is changing the way international investors
evaluate risks and, ultimately, where they allocate their portfolios.
Entrenched corruption has clearly noxious consequences. At
the most basic level, the cost of doing business rises and efficiency
suffers. There are knock-on effects, also. Confidence in Mexican
President Enrique Peña Nieto, for example, took a hit last year when

Lining up
Transparency International's 2014 Corruption Perception
Index, Americas
Global rank

Country

Score

1

Denmark

92

10

Canada

81

17

Barbados

74

17

United States

74

21

Chile

73
73

21

Uruguay

24

Bahamas

71

29

Saint Vincent and the Grenadines

67

39

Dominica

58

47

Costa Rica

54
46

63

Cuba

69

Brazil

43

80

El Salvador

39

85

Jamaica

38

85

Peru

38

85

Trinidad and Tobago

38

94

Colombia

37

94

Panama

37

100

Suriname

36

103

Bolivia

35

103

Mexico

35

107

Argentina

34

110

Ecuador

33

115

Dominican Republic

32

115

Guatemala

32

124

Guyana

30

126

Honduras

29

133

Nicaragua

28

150

Paraguay

24

161

Haiti

19

161

Venezuela

19

174

North Korea

8

174

Somalia

8

Source: Transparency International

16 L ATINFINA NCE.COM - September/October 2015

questions were raised about state contracts given to a construction
firm that owned his wife's house.
"While he and his team have a lot of good ideas and seem to be
doing an okay job, or a good job, in terms of implementing and
modernizing many things in Mexico, this puts that at risk," says Jorge
Piedrahita, chief executive of Torino Capital in New York. "Because,
if he's not politically strong to push for these issues, then that reform
agenda gets delayed."
For some, the scandals add up to little more than background
noise. Those with money to put to work will continue doing their
homework and working through a checklist of potential risks,
they say. Corruption worries may simply have moved up the list of
potential concerns, to fight global monetary policy uncertainty for
top position.
"A lot of deals are getting done," says Taisa Markus, partner at
Paul Hastings. "For investors in these markets, there have always
been risks. There was currency control risk, political risk, economic
risk, risks that the judiciary may not be capable of judging fairly or
enforcing judgements.
"So now, anti-corruption concerns are new in the mix. The risks
of investing in this region are counterbalanced by the fact that the
economies are growing and the returns can be very attractive."
A way in
Topping that list of deals getting done are private equity transactions.
For these buyers, the asset prices depressed by Brazil's scandal,
coupled with better financial metrics thanks to weaker currencies,
offer a chance for savvy investors to pick up assets at good prices.
Private equity deals are said to have continued apace this year,
in spite of recent scandals. That goes for Mexico, where the scandal
involving the house of the president's wife did not derail investment.
"When that happened, we took a step back and said, 'this will
be interesting', because we were seeing so many big international
private equity firms and a lot of the energy investment firms making
trips to Mexico, and in some cases opening offices there," says Cate
Ambrose, president and executive director of the Latin American
Private Equity & Venture Capital Association (LAVCA).
"We really wondered whether that would influence the appetite
from those investors - and that has absolutely not been the case. We
have continued to see really committed interest to taking stakes in
that market and defining investment opportunities."
The long-term view of many investors in public, and particularly
private, equity means that rising accountability among local
industry is particularly welcome. Indeed, many investors are already

ANTONIO FELIX DE ARAUJO CINTRA, TOZZINIFREIRE

"NO-ONE KNOCKS ON OUR DOOR
TODAY WITHOUT ASKING, AS A
FIRST QUESTION: 'HOW DO I MAKE
SURE THAT THIS COMPANY IS
CLEAN? HOW DO I MAKE SURE THAT
I WILL NOT INHERIT ANY
LIABILITIES HERE?'"
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Table of Contents for the Digital Edition of LatinFinance - September/October 2015
