An Agenda for Private Equity and Venture Capital in Latin America
By Cate Ambrose
Executive Director, Latin America Venture Capital Association
Source: March 2009 issue of the Thunderbird Private Equity Quarterly
At the same time that US policymakers aim to increase oversight of private equity, in Latin America fund managers and regulators are working together to expand private capital investment in the region within a framework of flexible and transparent rules.
Over the last decade, political leaders in Brazil, Mexico, Chile, Colombia and Peru have demonstrated their commitment to sound macroeconomic policies and market-driven growth. At the same time, companies have seen new opportunities to serve expanding global and domestic demand for goods and services.
Latin American businesses have traditionally been starved for capital, with bank credit tight and shallow public markets. Today, financial investors are stepping in to fund mid-sized companies seeking growth capital.
In this environment, a number of political leaders have recognized private equity and venture capital as a means to create, finance and professionalize businesses, and have launched campaigns to cultivate domestic fund industries.
A fundamental distinction between developed world private equity and the investments that are steadily increasing in Latin America is the relative lack of leverage in Latin American deals. Access to debt financing has been highly restricted in the region, and was just beginning to expand when the credit crisis first hit in 2007.
As a result, the region’s policymakers view private capital flows from global firms as a form of foreign direct investment. And local funds are often raised with commitments from high net worth sources and then invested in firms with high growth potential, efficiently reallocating capital within the economy.
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