Posts Tagged “LPs”

Will The Large Amount Of Capital Pouring Into Brazil Eventually Push Up Valuations To An Unsustainable Level?

December 2, 2020

An article by Antonia Henbest

‘We will match international valuations very shortly.’

- Brazilian GP

The problem with discovering an unspoilt paradise is that sooner or later somebody else turns up and the tranquillity becomes compromised. This is the current worry for those investing in Latin American private equity, and specifically in Brazil. With a growth rate of 7%, a stable political environment, a young workforce that is better educated and better off than the previous generation, Brazil is having its moment in the sun. This is obviously welcome news for the country’s fund managers who have had to convince investors that the misdemeanours and turmoil of the nineties were not an accurate reflection of the country’s true potential. However, some are undoubtedly concerned that the attention of the world’s private equity industry will effectively end the attractive pricing of deals in the region. The example of the other BRIC countries, such as India & China, where valuations have been steadily rising and hotly sought after, makes some small Brazilian players feel uneasy, ‘I don’t want all this money in Brazil!’ one exasperated Brazilian GP said earlier this year. Is there a magical middle ground whereby money flows easily into the country yet deals remains plentiful and good value? And for how long will this situation continue? Brazil’s fund managers are holding their collective breath.

How does Latin America Compare With Other Emerging Markets In Terms Of Investment Opportunities?

November 26, 2020

An article by Antonia Henbest

‘Latin America is overshadowed by Emerging Asia – but now I think it’s becoming more prominent as Asia becomes expensive. It’s the next big thing.’

- European LP

The story of emerging market growth is both well documented and often remarked upon. In an attempt to maximise returns, many LPs and GPs have flocked to less developed markets and profited from the wealth of opportunities that stultified western markets can no longer provide. Most impressive has been the rise of Asia, which has seemingly witnessed a blossoming of local talent as well as the inevitable surge of larger firms setting up in the region. By comparison, LPs often remark that whilst there is no doubt of the opportunities available in Latin America, the number of GPs who are of sufficient quality to accept institutional capital remains surprisingly low. There are other barriers to investment; many US endowments are still scarred by awful experiences of getting their fingers burnt in the nineties and having less capital returned than was originally invested, and occasionally, none at all. But despite these often quoted examples, Latin American private equity is an increasingly attractive destination for international capital. The recent close of the heavily oversubscribed Southern Cross Fund III proves that for those able to demonstrate the ability to deliver real risk adjusted returns on investment; the market is now more lucrative than ever. The question that many LPs want answered now is not should we access this market, but how should we to access this region?

Dual allocation causes problems for international investors

September 28, 2020

Vincent Huang, Pantheon Ventures speaking at SuperReturn Asia 2010

2005 saw a lot of exits out of private equity investments from China and a subsequent diminution of dollar based investments and the rise of Chinese LPs, with money coming from a largely institutional investor base, drawing on local government guidance funds and high net worth investors, largely drawn from the rising entrepreneur classes. “Local LPs makes it easier to raise money domestically but equally makes US dollar investment difficult” said Vincent Huang, of Pantheon Ventures.

Dual allocation of RMB and Dollar funds cause problems for international investors. “We are seeing conflicts in dual allocation, resource allocation, time and limits on funds and alignment of economic interest” he said. “We are seeing different solutions to address these problems and we are pushing for more transparency and co-operation.”

Andrew Ostrognai, Debevoise & Plimpton speaking at SuperReturn Asia 2010

By 2009, RMB based funds surpassed dollars in Chinese private equity. “Are we doomed to a dual set of standards?” asked panel moderator Ed Greene, of Diamond Dragon Advisors. Andrew Ostrognai of Debevoise & Plimpton believes not and that convergence is coming but can’t say quite when. “At the moment, offshore funds are closed to RMB and onshore funds are closed to non-RMB investors” he said.

Shirley Chen of China International Capital Corporation pointed out that China’s private equity business is quite different from that which operates in US and Europe. “There is no leverage in China because the growth opportunity is huge and there are so many low hanging fruits” she said.

The conclusion from the panel seemed to be that many LPs would rather invest in a market that has imperfections but that can generate returns.

Post Under: Asia

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