Spotlight: Brazil up, Mexico out as private equity destinations

For now, Brazil leads by far in global private equity investments regarding Latin American assets while Mexico disappeared as an investment destination. 

Private equity players invested US$3.1bn in Brazil during the first half of this year, up from US$1.5bn in the same period last year. Mexico, on the other hand, registered US$400mn in 1H18, but the amount for this year was too low to specify, according to Emerging Markets Private Equity Association (EMPEA). 

The association said the numbers point to “record-high, annual investment totals for the region” this year. Brazil surged ahead because of the continuing depreciation of the real versus the US dollar, anticipation of an economic recovery, less exposure to global trade tensions and a federal administration working to improve the business climate.

By contrast, concerns over government interventionism and high exposure to the US-China trade war prompted private equities to halt investments in Mexico. 

But such investments are drying up in general. 

“Following strong fundraising in 2018, private capital fund managers in Latin America raised just US$1.1bn in the first half of 2019, led by Vinci Partners’ third midmarket fund. This down year appears to be in line with historical fundraising cycles for the region, which previously saw peaks in capital raising in 2011 and 2014, compounded by the absence of large funds currently in the market and the precipitous drop in Mexico-focused fundraising,” EMPEA said.  

SECTORS 

Most private equity investments go to the energy and fintech sectors. Especially Brazil gained in the latter segment as the high concentration of the local banking industry and new pro-competition regulations have sparked a fintech boom.

In Brazil, Japanese investment-focused holding company Softbank often joins forces with private equities players and has invested in several local startups in recent months, drawing on its US$5bn Latin America fund.