Preqin Special Report: Latin America Can Investor Appetite Drive Growth?

Content Includes: Preqin Special Report: Latin America Can Investor Appetite Drive Growth?

Private Equity in Latin America March 2013

We give an overview of the Latin American private equity market, including investor appetite, deals activity, fundraising trends and performance.

Country Focus

We examine investor preferences for country- specific Latin American investment, as well as fundraising and deals data across specific countries.

Private Real Estate

We assess the private real estate industry in Latin America, including historical fundraising and the outlook for the year ahead.

Infrastructure

We take a closer look at infrastructure in Latin America, including deals data and key fundraising trends.

alternative assets. intelligent data. Preqin Special Report: Latin America, March 2013

Foreword

Private equity in Latin America has grown in prominence over the last few years, with fundraising levels in 2011 reaching an all-time high, both in terms of the aggregate capital raised and the number of funds closed. Despite lower levels of fundraising in 2012, fund managers have continued to raise funds purely focused on the region, with a greater number of funds in market as of January 2013 than in January 2012. Preqin’s survey of over 40 global investors with an interest in Latin America demonstrates that investor confi dence in the region also remains strong, with a signifi cant proportion looking to make further investments in the region in the future. The outlook for buyout and growth funds looks particularly positive for 2013, with a large proportion of investors interested in Latin America targeting these fund types specifi cally in the coming year. Funds focusing purely on a specifi c country within Latin America will continue to be in competition with geographically more diversifi ed vehicles, but a signifi cant proportion of investors display an interest in country-specifi c funds, particularly in the more developed private equity market in Brazil, as well as Colombia, Mexico and Peru. However, with the number of pan-Latin America-focused funds increasing in 2012, investors are likely to continue to look to gain diversifi ed exposure to the region in order to minimize the risk in investing in this still emerging market. Preqin Special Report: Latin America provides an exclusive insight into the private equity market in Latin America, including investor appetite, key fundraising data, deals and performance. The report draws exclusively from many of Preqin’s online products and services, which provide over 10,000 industry professionals with data on all aspects of alternative assets, including fund managers, fundraising, investors, deals, performance, service providers and more. We hope you fi nd this report useful, and welcome any feedback you may have. For more information, please visit www.preqin.com or contact [email protected]

Key Findings

● 57% of investors with an interest in Latin America view the region more favourably than other emerging markets.

● 22 Latin America-focused funds closed in 2012, raising an aggregate $5.1bn.

An overview of private equity in Latin America can be found on pages 3-6.

● 43% of the aggregate capital raised by Latin America-focused funds in 2012 was for vehicles focused on Brazil.

● 52% of investors with an interest in Latin America see Colombia as presenting the best investment opportunities in the region.

More country-specifi c Latin America analysis can be found on pages 7-9.

● Of the real estate funds in market, the majority of both the number (64%) and the aggregate target capital (63%) is being raised by Latin America-based fund managers.

More real estate information can be found on page 10.

● The core infrastructure industries of energy, transport and utilities account for 85% of the number of deals completed in the region since 1994.

More infrastructure information can be found on page 11.

All rights reserved. The entire contents of Preqin Special Report: Latin America are the Copyright of Preqin Ltd. No part of this publication or any information contained in it may be copied, transmitted by any electronic means, or stored in any electronic or other data storage medium, or printed or published in any document, report or publication, without the express prior written approval of Preqin Ltd. The information presented in Preqin Special Report: Latin America is for information purposes only and does not constitute and should not be construed as a solicitation or other offer, or recommendation to acquire or dispose of any investment or to engage in any other transaction, or as advice of any nature whatsoever. If the reader seeks advice rather than information then he should seek an independent ﬁ nancial advisor and hereby agrees that he will not hold Preqin Ltd. responsible in law or equity for any decisions of whatever nature the reader makes or refrains from making following its use of Preqin Special Report: Latin America.

While reasonable efforts have been made to obtain information from sources that are believed to be accurate, and to conﬁ rm the accuracy of such information wherever possible, Preqin Ltd. does not make any representation or warranty that the information or opinions contained in Preqin Special Report: Latin America are accurate, reliable, up-to-date or complete.

Although every reasonable effort has been made to ensure the accuracy of this publication Preqin Ltd. does not accept any responsibility for any errors or omissions within Preqin Special Report: Latin America or for any expense or other loss alleged to have arisen in any way with a reader’s use of this publication.

Private Equity in Latin America

The Latin American private equity market has evolved Fig. 1: Countries and Regions within Emerging Markets that Investors considerably in recent years, with an ever-increasing number of View as Presenting the Best Opportunities* funds in market focusing on the region specifi cally. Increasing investor interest in Latin America-focused private equity funds Asia 49% has led to a surge in fundraising, with aggregate capital raised China by the 41 funds that closed in 2011 reaching $15.2bn, the 31% highest amount raised in any single year. A number of large Latin America 27% Brazil-focused funds held a fi nal close in 2011 (see page 7), India 22% Central and 20% partly driven by increasing investor confi dence in Brazil’s rapidly Eastern Europe growing economy and more stable market in 2011. Despite Africa 18% the aggregate capital raised by Latin America-focused funds Middle East 14% closed in 2012 decreasing signifi cantly to 22 funds closing on Brazil 12% an aggregate $5.1bn, investors still view the region positively, with many looking to either maintain or increase their portfolio Russia 8% allocations to Latin America over the next 12 months. Other 4% 0% 10% 20% 30% 40% 50% 60% Emerging Markets Proportion of Respondents Source: Preqin Global Investor Survey, December 2012 Although Latin America-focused fundraising has experienced growth in recent years, other emerging markets such as Asia are Fig. 2: Proportion of Aggregate Capital Raised by Emerging Markets- still garnering more capital and investor interest. In December Focused Funds by Region 2012, Preqin conducted a survey of over 100 LPs from around the world and found out about their current appetite for different 100% 2% 3% 1% 4% 2% emerging markets. Although Latin America was named by a 4% 6% 5% 6% 4% signifi cant 27% of respondents as presenting the best investment 90% 80% opportunities, Asia and China were stated as attractive by 49% Africa and 31% of respondents respectively. 70% 61% Asia 72% 73% 70% 60% 71% 73% 73% 74% Fig. 2 shows that Asia has consistently accounted for between 74% 75% 50% Latin America 70% and 75% of the aggregate capital raised annually by emerging markets-focused funds since 2004. Latin America- 40% Middle East & Israel

30% focused funds have historically contributed a much lower 13% Diversified Multi- 8% Regional 7% proportion of the aggregate capital raised by emerging market- 20% 8% 8%

Proportion of Aggregate Capital 8% 5% 14% 6% 13% 7% 9% focused funds, peaking at a high of 20% in 2011. 9% 8% 20% 6% 10% 9% 2% 15% 12% 5% 9% 8% 9% 8% 5% 5% 8% 2% 0% 1% The proportion of aggregate capital raised by emerging markets- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 focused funds represented by Latin America-focused vehicles fell Source: Preqin Funds in Market Online Service from 20% in 2011 to 8% in 2012, demonstrating that fundraising remains challenging in the region, particularly compared to Asia. Fig. 3 shows that the number of Latin America-focused funds Fig. 3: Latin America-Focused Funds in Market over Time, 2007 - 2013 in market has grown over the last year, from 55 funds targeting an aggregate $20bn in January 2012 to 68 funds targeting an aggregate $18bn as of January 2013, the highest number of 70 68 funds in market in the period 2007-2013. Fund managers looking to raise capital for Latin America-focused funds in the coming 60 year may ﬁ nd fundraising challenging, given the increasingly 55 51 crowded market and competition for LPs’ emerging markets 50 45 44 No. of Funds allocations from managers targeting regions like Asia. Raising 40 37

Investor Appetite for Latin America 30

Aggregate 22 Target Capital 20 However, there is still signiﬁ cant investor appetite for emerging 20 18 ($bn) 16 16 markets, and for Latin America speciﬁ cally. In Preqin’s December 12 12 2012 investor survey, 60% of respondents stated they invest in 10 5 emerging markets and a further 14% said they are considering 0 the possibility in the near future. Of the investors that currently Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 invest in emerging markets, 30% are looking to increase their Source: Preqin Funds in Market Online Service

*Respondents were not prompted to give their opinions on each country/region individually; therefore the results display the countries and regions at the forefront of investors’ minds at the time of the survey.

allocations in the next 12 months, with 44% looking to do so over Fig. 4: Investor Attitudes Towards Latin American Investment the longer term. Opportunities in Comparison to Other Emerging Markets

In order to further explore investor appetite for Latin America in particular, Preqin conducted a further study of over 40 LPs in January 2013 that have either previously committed to More Attractive funds investing in Latin America or are seeking to invest in 38% Opportunities in Latin the region. Fig. 4 shows that 57% of respondents to this study America believe that Latin America is currently presenting more attractive 57% More Attractive investment opportunities than other emerging markets. These Opportunities in Other Emerging Markets investors provided a number of reasons for their preference for Latin America, including the region’s “good demographic and 5% Unsure increasing maturity of economic and political structures”, “better corporate governance”, “growing middle classes” and “wealth of natural resources”.

When investors were asked which private equity fund types they viewed as presenting the best opportunities within Latin America, Source: Preqin Latin America Investor Survey, January 2013 73% stated a preference for growth funds. Of the 68 funds in market, 13 are focused on growth stage investment. There is also signiﬁ cant investor appetite for small to mid-market buyout Fig. 5: Investors’ Views on Fund Types Presenting the Best funds, with 67% of investors naming the fund type as currently Opportunities within Latin America presenting the best investment opportunities.

80% Interestingly, Fig. 6 shows that a signiﬁ cant 64% of LPs 73% 70% interviewed prefer to invest in a direct fund with a 100% focus on 67% Latin America and a further 26% look to invest via direct funds 60% that include Latin America within their remit. As LPs have become more experienced in investing in the region, many have moved to 50%

investing in direct funds. Only 2% of LPs interviewed stated that 40% their preferred method of exposure to the region was via funds of funds. However, it should be noted that the survey of investors 30%

was focused on those with an active interest in Latin America. 20% Proportion of Respondents

10% 7% 7% Performance of Latin America-Focused Funds 3% 3% 0% Growth Small to Mid- Large to Mega Venture Capital Mezzanine Other Investor interest in the region may also be driven by the strong Market Buyout Buyout performance of Latin America-focused funds. Fig. 7 shows the Source: Preqin Latin America Investor Survey, January 2013 median net multiple by vintage year of Latin America-focused funds against those of Asia, Europe and North America. The chart shows that Latin America-focused funds of pre-2007 vintage years outperform Asia, Europe and North America, with Fig. 6: Investors’ Preferred Methods of Gaining Exposure to Latin a median net multiple of 1.35x for vintage 2006 Latin America- America focused funds, compared to 1.23x for Asia, 1.12x for Europe and 1.15x for North America. Despite a subsequent decrease in the 70%

median net multiple for these funds, it should be noted that funds 64%

of recent vintage years are still early in their investment cycles. 60%

50% Are you an LP? 40% Would you like to see details of all 68 new Latin America-focused 30% funds on the road? Would you like to see performance track 26% records for hundreds of fi rms and funds to help you make the best 20%

investment decisions? Proportion of Respondents

10% 9% Gain free access to this vital information through Preqin Investor 2% Network. For more information, please visit: 0% Direct Fund: 100% Latin Direct Funds: Include Latin Funds of Funds: 100% Latin No Preference America Focus America Within Remit America Focus www.preqin.com/pin Source: Preqin Latin America Investor Survey, January 2013

Fig. 7: Median Net Multiple by Vintage Year and Primary Fig. 8: Investors’ Intentions for the Proportion of Their Private Equity Geographic Focus Portfolios Allocated to Latin America Over the Next 12 Months

2.1 11%

28% 1.9 Increase Allocation Asia

1.7

Europe Maintain Allocation 1.5

Latin America 61% 1.3 Decrease

Median Net Multiple (X) Allocation North America

1.1

0.9 2000-2002 2003-2005 2006 2007 2008 2009 2010 2011 2012 Source: Preqin Latin America Investor Survey, January 2013 Source: Preqin Performance Analyst Online Service

Nonetheless, it can be seen that Latin America-focused funds those specifi cally targeting the region, are still cautious when of vintage 2008 have a higher median net multiple (1.25x) than approaching commitments to Latin America-focused funds. those of Asia, Europe and North America. Dry Powder Investors’ Future Plans for Committing to Latin America In addition to caution among investors, a key concern for fund Moving forwards, the majority (61%) of investors interviewed managers is whether LPs will continue to make new commitments stated that they will be maintaining their private equity allocations in the region if their capital in existing commitments is not being to Latin America in 2013 (Fig. 8) and 28% of respondents will called up. December 2012 saw dry powder reach an all-time high be increasing their private equity allocations to Latin America of $35bn for Latin America-focused funds, indicating that many over the next 12 months. The outlook for the longer term is even fund managers still have capital available that they have yet to more positive, with 43% of respondents looking to increase their put to work. This represents a 27% increase from the $27bn in allocations to the region. dry powder available in December 2011, and a 73% increase from the $20bn in Latin America-focused dry powder available in More specifi cally, a signifi cant proportion of investors interviewed December 2010. plan to commit to funds targeting the region in the near future, with 38% of respondents stating that they will be committing Latin American Venture Capital Deals to a Latin America-focused fund in the coming year, and 7% expecting to make a commitment to a vehicle targeting the region However, the continued development of the Latin American market in 2014; only 5% of respondents do not anticipate investing in the has driven a growth in investment opportunities, particularly in the region before 2015. However, half of investors interviewed are venture capital space. The number and aggregate value of venture unsure when they will make their next commitment to a Latin capital-backed deals has increased considerably from 2008 to America-focused fund, demonstrating that many investors, even 2012 (Fig. 9). Fifty-six venture capital deals were completed in 2012, with an aggregate value of $204mn. This represents a Fig. 9: Number and Aggregate Value of Venture Capital Deals by signifi cant 70% increase in the number and 143% increase in the Year, 2008 - 2012 aggregate value of venture capital deals compared to 2011. The growth in the middle class in particular regions of Latin America, 60 250 56 such as Brazil, one LP told us, has led to an “increase in consumer spending, which will help small companies in the region which 50 200 Aggregate Deal Value ($mn) need money to fund growth”. This increase in consumer spending

40 drives higher levels of entrepreneurship in these regions, in turn 150 33 leading to more interest from venture capital ﬁ rms that see the

30 potential for proﬁ table investments. 25

No. of Deals 22 100 20 In terms of industry, internet and software & related deals make 14 up the majority of both the aggregate value (68%) and the 50 10 number (53%) of venture capital deals in Latin America from 2008-2012 (Fig. 10). Consumer discretionary is the third most 0 0 2008 2009 2010 2011 2012 prominent industry in terms of the number and aggregate value No. of Deals Aggregate Deal Value ($mn) of deals, further demonstrating the growth in consumer spending Source: Preqin Venture Deals Analyst Online Service in Latin America. One notable deal in the software sector was the

Fig. 10: Proportion of Number and Aggregate Value of Venture Fig. 11: Number and Aggregate Value of Private Equity-Backed Capital Deals by Industry, 2008 - 2012 Buyout Deals in Latin America, 2008 - 2012

50% 70 8

45% 45% 7 60 59 59 40% 57 37% 55 Aggregate Deal Value ($bn) 35% 6 50 30% 5 39 25% 23% 40

20% 4 16% 30 15% 3 No. of Deals 10% 10% 8% 7% 20 6% 6% 5% 5% 5% 4% 2 5% 3% 3% 3% 3% 2% 3% 3% 1% 2% 10 0% 1 Other Other IT Internet Business Services 0 0 Food Telecoms Software Industrials & Related Cleantech

Healthcare 2008 2009 2010 2011 2012 Consumer Discretionary & Agriculture No. of Deals Aggregate Deal Value ($bn) No. of Deals Aggregate Deal Value

Source: Preqin Venture Deals Analyst Online Service Source: Preqin Buyout Deals Analyst Online Service $66mn Series C fi nancing of software company Spring Wireless Fig. 12 shows that consumer and retail, industrials and business by Goldman Sachs Merchant Banking Division, Ideiasnet and services account for 23%, 18% and 16% respectively of the New Enterprise Associates in August 2008. number of buyout deals in Latin America between 2008 and 2012. The prominence of consumer and retail buyout deals again Latin American Private Equity-Backed Buyout Deals demonstrates the growth in consumer spending in Latin America in recent years. 2013 has already witnessed the signifi cant $28bn In comparison to venture capital deal trends, the aggregate buyout of food company Heinz Capital by Berkshire Hathaway value of buyout deals announced each year in Latin America is and 3G Capital, a Brazil-based investment fi rm. The deal is the signifi cantly larger, but has fallen since 2010. Buyout deal activity largest buyout globally since Blackstone Group’s acquisition of peaked in 2010, with 57 deals valued at an aggregate $6.8bn. Hilton Worldwide for $26bn in 2007. 2011 and 2012 witnessed a similar number of deals as 2010; however, the aggregate value of buyout deals completed in 2011 Outlook was 54% less than those completed in 2010 and the aggregate value of buyout deals in 2012 fell again slightly compared to The aggregate capital raised by Latin America-focused funds 2011. The fi gures are distorted by the fact that the three largest decreased signifi cantly in 2012 compared to 2011, and fundraising buyout deals to have occurred in Latin America between 2008 will likely remain challenging for fund managers looking to raise and 2012 were all in 2010; these alone accounted for 59% of capital for vehicles targeting the region. The high level of dry the aggregate value of all private equity-backed buyout deals powder still available for investments in the region indicates that in 2010. The largest deal among these is the $1.8bn buyout of many GPs are still searching for suitable investment opportunities BTG Pactual, a Brazilian investment bank, in December 2010 for the capital they have already raised. This shows the potential by a consortium of investors led by Government of Singapore for growth in deal fl ow in the region in the future but it may also Investment Corporation, Invest AD, JC Flowers & Co., Ontario prevent some LPs from making new commitments while they wait Teachers’ Pension Plan and China Investment Corporation. for existing uncalled commitments to be called up.

Fig. 12: Proportion of Number and Aggregate Value of Private However, there is still signiﬁ cant investor appetite for vehicles Equity-Backed Buyout Deals in Latin America by Industry, 2008 - 2012 targeting the region, with 43% of investors interviewed by Preqin in January 2013 looking to increase their allocations to 35% Latin America-focused funds in the long term. There are still 31% 30% 30% investment opportunities available in Latin America, particularly in the venture capital space, with increasing entrepreneurship 25% 23% and growth in the region.

20% 18% 16% 15% Source Potential Investments for Funds

10% 10% 9% 9% 8% 7% 6% 7% Access details of over 4,800 active investors in private equity on 5% 5% 4% 4%4% Preqin’s Investor Intelligence, and profi le and identify potential 2% 2% 2% 1% 1% 1% investors for new vehicles. View investors’ exclusive future plans 0%

IT and preferences for investments in Latin America, preferred Other

Energy methods of contact, past investments and direct contact & Retail Business Materials & Media Food Services Telecoms Industrials Consumer Cleantech Healthcare information. & Agriculture No. of Deals Aggregate Deal Value

Source: Preqin Buyout Deals Analyst Online Service www.preqin.com/ii

Latin America: Country Focus

Fig. 13: Breakdown of Latin America-Focused Fundraising by Fig. 14: Annual Brazil-Focused Fundraising, 2006 - 2012 Country, 2006 - 2012

100% 25

90% 22 25% 24% Brazil 80% 37% 20 44% 0.5% 43% 1% 1% 4% 70% Chile 65% 11% 16 20% 0% No. of Funds 60% 78% 15 Closed 11% 5% 0% Colombia 3% 2% 50% 11.8 10% 11 21% 19% Mexico 0% 10 40% 10 0% 9 Aggregate 1% 1% 0% 8 8 Capital Raised 4% Peru 30% 1% 10% ($bn) 55% 51% 2% 0% 5.3 42% 0.5% 5 20% 5% 35% Pan-Latin 30% 5% America 2.9 2.2 10% 22% 1.9 2.1

Proportion of Aggregate Capital Raised 1.5 12% 0% 0 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012 Source: Preqin Funds in Market Online Service Source: Preqin Funds in Market Online Service

Fundraising levels in Latin America have varied signifi cantly over Brazil, represented a signifi cant proportion of the aggregate time, and despite the 66% decrease in aggregate capital raised in capital raised by all funds focused on the region. 2012 in comparison to 2011 (see page 3), many investors continue to see the region as presenting good investment opportunities. Brazil-focused funds accounted for 78% of the total capital Brazil continues to be the most prominent destination for Latin raised by Latin America-focused funds in 2011, resulting from America-focused investment, but a large proportion of investors the closure of several large Brazil-focused funds, including the view markets in other countries, such as Colombia and Mexico, $1.8bn fi nal close of Gávea Investment Fund IV and the $1.5bn as also presenting good investment opportunities. However, fi nal close of BTG Pactual Brazil Investment I. Eight of the largest fund managers and investors often continue to look to diversify 10 Brazil-focused funds to close since 2009 occurred in 2011, their portfolios across all of Latin America in order to reduce the accounting for an aggregate $6.4bn in capital commitments. risk involved in investing in this emerging market. However, the proportion of investors stating that Brazil presents Fundraising by Country the best investment opportunities in emerging markets decreased from 25% in December 2011 to 12% in December 2012 (see page The proportion of capital raised for investment across different 3). 2012 saw the proportion of capital raised by funds targeting Latin American countries has fl uctuated signifi cantly between Latin American countries outside of Brazil increase, with new 2006 and 2012, as shown in Fig. 13. Although pan-Latin America- opportunities in other Latin American countries attracting interest focused funds accounted for 55% of the aggregate capital raised from investors and fund managers. For instance, the proportion by Latin America funds in 2010, this decreased to only 12% the of aggregate capital accounted for by Mexico-focused funds following year, when an all-time record $15.2bn was raised by increased from 5% in 2011 to 19% in 2012, with funds closed in Latin America-focused funds. In 2011 and 2012 country-specifi c 2012 raising an aggregate $966mn. This trend is likely to continue Latin America-focused vehicles, particularly those targeting as investors look to diversify their portfolios. In addition to an increase in investment in country-specifi c funds, Latin America- Fig. 15: Proportion of Aggregate Capital Raised by Brazil-Focused focused vehicles with a geographically diversifi ed focus also saw an increase in the proportion of aggregate Latin America- Funds by Type, 2006 - 2012 focused capital they raised to 35%. Of the 68 funds currently in market targeting Latin American investment opportunities, 41% 100% 1% 0% 4% 9% 9% 0% 19% 90% 22% 27% Buyout 12% 27% 36% 80% 0% 4% Growth Are you a GP or a Placement Agent? 34% 11% 70% 19% 0% Infrastructure 60% Did you know that Preqin’s market-leading databases of 0% 21% 13% 19% Natural Resources alternative assets investors identify more than 970 LPs based 50% 15% 46% 12% around the world which have either expressed an interest in 71% 40% Real Estate investing in Latin American private equity, infrastructure and 5% 32% real estate, or have already done so? 30% 57% Venture Capital 3% 0% 18% 47% 39% 20% Other 16% 0.3% Would you like to see the full list, with detailed profi les and

Proportion of Aggregate Capital Raised 10% 11% contacts for all these LPs? For more information, please visit: 3% 2% 15% 1% 3% 5% 6% 5% 1% 0% 0% 1% 0% 2006 2007 2008 2009 2010 2011 2012 www.preqin.com/services Source: Preqin Funds in Market Online Service

Fig. 16: Countries within Latin America Investors View as Presenting Fig. 17: Proportion of Aggregate Value and Number of Private the Best Investment Opportunities Equity-Backed Buyout Deals by Country, 2008 - 2012

90%

Brazil 59% 82% 80%

Colombia 52% 70%

Mexico 41% 60% 57% Aggregate Deal Value Peru 17% 50%

40% Chile 3%

30% No. of Deals Venezuela 3% 20% 18%

Other 7% 10% 8% 8% 5% 6% 6% 4% 3% 0% 10% 20% 30% 40% 50% 60% 2% 1% 0% Proportion of Respondents Brazil Argentina Mexico Colombia Chile Other

Source: Preqin Latin America Investor Survey, January 2013 Source: Preqin Buyout Deals Analyst Online Service

are purely Brazil focused, 7% are Colombia focused, 4% are Brazil Fundraising by Type Mexico focused, and a signifi cant 51% are diversifi ed. Fig. 15 shows that the capital raised by real estate funds has Brazil Fundraising often made up a notable proportion of capital raised by all Brazil-focused funds; in 2012 these funds represented 47% of Despite growth in investor interest in other Latin American the aggregate capital raised by Brazil-focused funds in the year. countries, many fund managers are still targeting Brazil’s more Infrastructure funds have also raised a signifi cant 11% of the developed market. Brazil continues to account for the largest aggregate capital raised by Brazil-focused vehicles. We explore proportion of country-specifi c Latin America fundraising, both in Latin American real estate in more detail on page 10, and take a terms of aggregate capital raised and number of funds closed. closer look at infrastructure investment in the region on page 11. Fig. 14 shows that the number and aggregate capital raised by Brazil-focused funds reached an all-time high in 2011, with 22 Although the capital raised by buyout funds represented 36% funds closing on an aggregate $11.8bn. As shown above, this of the aggregate capital raised by Brazil-focused funds in 2011, may be accounted for by the fi nal close of several large Brazil- there were no buyout funds closed in 2012 focusing solely on focused funds in 2011. However, in 2012 only eight Brazil- Brazil. In contrast, the proportion of aggregate capital raised focused funds closed on an aggregate $2.2bn. A key concern for by Brazil-focused growth vehicles has increased, from 13% in fund managers is whether LPs will continue to look to make new 2011 to 22% in 2012. There is also signifi cant investor appetite commitments to Brazil-focused vehicles if their capital in existing for these vehicles; 73% of LPs in our January 2013 study of commitments to the country is not being called up. High levels of investors targeting Latin America stated that they believe that dry powder in Latin America indicate that many fund managers growth funds are currently presenting the best opportunities in are continuing to search for suitable investment opportunities. the region (page 4). It is likely that investment in this type of Latin America-focused vehicle is likely to increase, particularly in Brazil. Fig. 18: Proportion of Aggregate Value and Number of Venture Capital Deals by Country, 2008 - 2012 Investor Appetite for Country-Specifi c Investment

70% When investors in Preqin’s January 2013 survey were asked which countries they see as presenting the best opportunities 60% 59% for investment, 59% of respondents named Brazil (Fig. 16); it is 54%

50% Aggregate Deal Value Are you a Law Firm, Fund Administrator, or Service 40% Provider?

30% No. of Deals Do you need to see details for all private equity, real estate and infrastructure fi rms active in Latin America? Do you need to 20% 17% 15% 14% 15% know which are currently raising – or likely to be raising – a new 10% fund? Focus and enhance your business development activity 10% 9% 5% with Preqin’s online databases. 2% 0% Brazil Argentina Mexico Chile Other www.preqin.com/services Source: Preqin Venture Deals Analyst Online Service

therefore likely that a large proportion of investors will continue Outlook to target Brazil-focused funds in the future. Interestingly, however, 52% of respondents stated that they saw Colombia as Although Brazil continues to be the most prominent country in presenting the best investment opportunity, 41% stated Mexico, Latin America in terms of private equity activity, fund managers and 17% stated Peru. As Colombia-focused and Mexico-focused are increasingly raising funds focusing outside of the country. funds currently represent 7% and 4% of the funds in market Only a small number of funds in market are Mexico and Colombia respectively, investor interest in these regions may lead to focused but these countries are stated by a large proportion increased investment in these countries in the future. of investors as presenting good investment opportunities, indicating that investment in these areas may increase going Deals Breakdown forward. However, the inherent country risk involved in investing in all emerging markets means that investors often look to target Private equity-backed buyout deals are more common in geographically diversifi ed funds in order to hold a diverse portfolio countries with more developed economies, demonstrating why of investments. Therefore, funds with a diversifi ed country focus Brazil accounted for the largest proportion of the number and will likely continue to represent a signifi cant proportion of Latin aggregate value of Latin American buyout deals over the period America-focused vehicles. 2008-2012, as Fig. 17 shows. Brazil accounted for over half the number (57%), and 82% of the aggregate value of private equity- backed buyout deals in Latin America from 2008 to 2012. The country attracting the second highest number of private equity- backed buyout deals was Mexico, with 18% of the total number Are you an LP? Navigate the Fundraising Market of private equity-backed buyout deals in Latin America. However, the aggregate value of Mexican deals accounted for only 4% of View comprehensive information on all Latin America-focused the total value of all Latin America buyout deals between 2008 funds in market, including their country focus, which funds have and 2012. held interim and fi nal closes, named fund performance data, deals information and much more on Preqin’s online products Looking at a similar analysis of venture capital deals from 2008 to and services. 2012 (Fig. 18), there is a slightly more diverse picture; however, Join Preqin Investor Network to get free access to private equity Brazil accounted for a signifi cant 59% of the aggregate value funds in market, key contact information and performance track and 54% of the number of venture capital-backed investments records. in Latin America from 2008 to 2012. Mexico and Argentina each accounted for 15% of the aggregate deal value over this time For more information, or to register, please visit: period; however, Mexico accounted for a slightly higher 17% of the number of venture capital deals between 2008 and 2012, in www.preqin.com/pin comparison to Argentina at 14%.

Fig. 19: 10 Largest Latin America-Focused Funds in Market (As of 1 February 2013)

Target Size Fund Manager Type Location Focus ($mn) BTG Pactual Brazil Infrastructure BTG Pactual Infrastructure 1,500 Brazil, South America Fund II Astra Infrastructure Fund Astra Investimentos Infrastructure 1,000 Brazil Macquarie Infrastructure and Real South America, Central America, LAC-China Infrastructure Fund Infrastructure 1,000 Assets (MIRA) Americas Astra Natural Resources Fund Astra Investimentos Natural Resources 1,000 Brazil Hemisferio Sul Investimentos Hemisferio Sul Investimentos Real Estate 650 Brazil Fund IV Angra Partners Fund 2 Angra Partners Expansion / Late Stage 500 Brazil Astra Agro Fund Astra Investimentos Growth 500 Brazil SLC Resources Opportunity Fund SinoLatin Capital Growth 500 South America Brazil, Chile, Colombia, Mexico, Latin Power IV Conduit Capital Partners Infrastructure 500 Peru, South America, Central America TFI-Hines Brazil Income Real The First Investor, Hines Real Estate 500 Brazil Estate Fund Source: Preqin Funds in Market Online Service

Sector in Focus: Real Estate

Closed-end private real estate funds have often represented a Fig. 20: Annual Latin America-Focused Closed-End Private Real signiﬁ cant proportion of Latin America-focused private equity Estate Fundraising, 2006 - 2012 funds. The 14 real estate funds currently in market targeting the region represent 21% of both the number and aggregate 10 capital sought by Latin America-focused funds. The developing 9 Latin American market presents opportunities for fund 9 8 managers raising private real estate funds. These funds are 8 7 increasingly being raised by fund managers based in the region, 7 No. of Funds Closed 6 6 demonstrating their conﬁ dence in local real estate opportunities 6

and the increasing development of the private real estate industry 5 5 5 in Latin America. 4 Aggregate Capital Raised 3.0 ($bn) 3 2.9 Historical Real Estate Fundraising 2.5 2.0 2 1.8 1.5 1.0 Private real estate fundraising for vehicles focusing primarily on 1

Latin America fell signifi cantly in 2012 in comparison to 2011, as 0 demonstrated in Fig. 20, with fi ve funds reaching a fi nal close 2006 2007 2008 2009 2010 2011 2012 having raised $1.5bn. This represents a signifi cant 44% decrease Source: Preqin Real Estate Online Service in the number and 50% decrease in the aggregate value compared to funds that closed in 2011. However, it should be noted that Fig. 21: Annual Latin America-Focused Closed-End Private Real 2011 represented a particularly successful year for private real Estate Fundraising by Geographic Focus, 2006 - 2012 estate fundraising in Latin America, with the capital raised by Latin America-focused private real estate funds representing 5.3% of

the total real estate capital raised globally, an all-time high. 3000 42

726 Brazil – a Hub for Private Real Estate? 2500

Pan-Latin America Private real estate funds are particularly prominent in Brazil, 1507 345 2000 1151 representing 47% of all Brazil-focused private equity funds closed 363 Mexico in 2012. Brazil consistently accounts for a signiﬁ cant proportion 1500 257 629 of the amount of aggregate capital raised by real estate funds 15 Brazil 275 targeting Latin America, as Fig. 21 shows, and over the period 535 1000 300 1920 2006-2012 the country accounted for 53% of all Latin America- 1141 308 Argentina 1341

focused real estate capital. Eighty-four percent of the aggregate Aggregate Capital Raised ($mn) 500 1046 852 826 target capital of Latin America-focused real estate funds in 662

market is being sought by Brazil-focused funds, indicating that 261 0 Brazil will likely remain a prominent country for future real estate 2006 2007 2008 2009 2010 2011 2012 investment in Latin America. Source: Preqin Real Estate Online Service

Funds by Strategy it is interesting to note that of these funds in market, the majority of both the number (64%) and the aggregate target capital (63%) The majority of Latin America-focused real estate funds closed is being raised by Latin America-based fund managers. This is in between 2006 and 2012 follow an opportunistic strategy, with comparison to the period 2006-2012, when 67% of the aggregate 58% of both the number of funds closed and the aggregate capital capital raised was by non-Latin America-based fund managers. raised by opportunistic funds closed over this time period. Many Interestingly, the average target fund sizes of these managers real estate opportunities in the region require more extensive are very similar; non-Latin America-based fund managers have development, ideal investments for opportunistic or value added an average target fund size of $285mn and Latin America-based vehicles. In contrast between 2006 and 2012 only two core closed- fund managers have an average target fund size of $280mn. end private real estate funds closed on an aggregate $400mn. Analyze the Latin American Real Estate Market Outlook Preqin’s Real Estate Online database contains in-depth The capital raised by Latin America-focused real estate funds has information for over 70 Latin America-focused real estate ﬂ uctuated in recent years, with a signiﬁ cant decrease in both the funds, including net-to-investor fund performance, fundraising number of funds closed and aggregate capital raised between information, institutional investor profi les and more. 2011 and 2012. As of January 2013, there are 14 Latin America- focused closed-end private real estate funds in market, targeting For more information, please visit: an aggregate $3.8bn in capital commitments. Attracting investor www.preqin.com/reo capital looks set to remain challenging for these funds; however,

Sector in Focus: Infrastructure

Infrastructure investment in Latin America is in demand due to Fig. 22: Latin America-Focused Unlisted Infrastructure Fundraising, the developing nature of the region’s economy. The long-term, 1993 - February 2013 stable nature of the asset class means fund managers often predominantly target the more developed markets of Europe, 16 North America and Australia. Infrastructure investment in 14 emerging markets often requires the development of greenﬁ eld 14 assets, carrying inherent construction risk, alongside the 12 No. of Funds increased political risk often associated with these regions. As a result, investors may be wary of committing capital to Latin 10

America-focused unlisted infrastructure funds, and are more 8 likely to invest in more established markets. 6 6 6.1 Aggregate 6 Capital 5 5 Raised/Sought 4 ($bn) Historical Infrastructure Fundraising 4 2.8 3 2 2 1.7 1.3 1.5 A breakdown of primarily Latin America-focused unlisted 11 0.9 0.6 0.8 0.2 0.2 infrastructure fundraising from 1993-2012 shows that the 0 fundraising environment for the asset class remains challenging, 1993-2004 2005 2006 2007 2008 2009 2010 2011 2012 Raising with the number of funds reaching a ﬁ nal close and the aggregate Source: Preqin Infrastructure Online Service capital raised annually remaining at relatively low levels, as demonstrated in Fig. 22. The aggregate capital raised by Latin America-focused unlisted infrastructure funds decreased Fig. 23: Breakdown of Deals Made by Unlisted Infrastructure Fund signiﬁ cantly between 2011 and 2012, from $1.5bn in 2011 to Managers in Latin American Assets by Country, 1994 - February 2013 $0.8bn, the lowest point since 2008.

60 Unlisted infrastructure funds raised over the period 1993-2012 57 have predominantly focused on Brazil. A signiﬁ cant 40% of the number of funds and 39% of the aggregate capital raised 50 by Latin America-focused unlisted infrastructure funds over this time period target Brazilian assets. Interestingly, despite 40 only three Chile-focused unlisted infrastructure funds holding a ﬁ nal close over this time period, the region accounted for 16% 30

No. of Deals 27 of the aggregate capital raised. The largest of these vehicles 23 19 was Transelec Transmission, managed by Canada-based ﬁ rm 20 18 Brookﬁ eld Asset Management, which closed in June 2006 having 10 raised an aggregate $1.4bn in capital commitments. 10 6 4 4

Latin America-Focused Infrastructure Deals 0 Argentina Bolivia Brazil Chile Colombia Guatemala Mexico Peru Other

Following on from the fi nancial crisis, 2009 saw a signifi cant drop Source: Preqin Infrastructure Online Service in the number of deals completed by unlisted infrastructure fund managers in Latin America, decreasing from 18 in 2008 to 10 in infrastructure funds currently in market, seven take a diversifi ed 2009. Since this point, the number of deals completed annually approach, six are purely focused on Brazil and one fund is purely in the region has increased back to 2008 levels, with 18 deals focused on Mexico. completed in 2012. Fig. 23 shows the majority of infrastructure deals since 1994 were in Brazil, with 57 deals taking place in the country. The core infrastructure industries of energy, transport and utilities are the main focus for deals in Latin America; these industries account for 85% of the number of deals completed in the region since 1994. View the Latest Latin American Infrastructure Data

Outlook Access detailed information on 48 Latin American infrastructure funds, including key contact information, known investors, recent investment activity, fund performance, and much more As investors look outside of traditional developed markets on Preqin’s Infrastructure Online. for proﬁ table opportunities, infrastructure investment in Latin America is likely to see increasing interest from institutional For more information, or to register for a demonstration, please investors and fund managers alike. Unlisted infrastructure funds visit: in Latin America currently account for a signiﬁ cant 21% of the number and 33% of the aggregate capital targeted by all private www.preqin.com/infrastructure equity funds in market purely focused on the region. Of the 14

Preqin: Latin America-Focused Data and Intelligence

With global coverage and detailed information on all aspects of the private equity, real estate, If you want any further infrastructure and hedge fund asset classes, Preqin’s industry-leading online services keep information, or would like to you up to date on all the latest developments across alternative assets. request a demo of our products, please contact us: Source new investors for funds and co-investments New York: Find the most relevant investors, with access to detailed proﬁ les for institutional investors actively investing in alternatives, including insurance companies, pension funds, family ofﬁ ces, One Grand Central Place foundations, wealth managers, endowment plans, banks and more. 60 E 42nd Street New York Identify potential investment opportunities NY 10165

View in-depth profi les for alternatives funds seeking capital, including information on Tel: +1 212 350 0100 investment strategy, geographic focus, service providers used, sample investors and direct Fax: +1 440 445 9595 contact information. London: Find active fund managers Equitable House Search for fi rms actively targeting private equity investments. View information on key contacts, 47 King William Street fi rm fundraising and performance history, and applied strategies of the fi rm when investing in London portfolio companies and assets. EC4R 9AF

Analyze the latest fundraising activity Tel: +44 (0)20 7645 8888 Fax: +44 (0)87 0330 5892 See which ﬁ rms are currently on the road raising funds and which will be coming to market soon. Analyze fundraising over time by target sizes, interim closes, fund strategy and location. Singapore:

Benchmark performance One Finlayson Green #11-02 Identify which fund managers have the best track records with performance benchmarks for Singapore 049246 private equity, hedge funds, real estate and infrastructure funds and view performance details on individual named funds. Tel: +65 6305 2200 Fax: +65 6491 5365 Examine fund terms Silicon Valley: Use our unique tools to model fee changes and see: what are the typical terms that a fund charges? What are the implications of making changes to different fees? How do these fees 303 Twin Dolphin Drive vary between fund types and geographies? Suite 600 Redwood City CA 94065 Find out how Preqin’s range of products and services can help you: Tel: +1 650 632 4345 www.preqin.com/services Fax: +1 440 445 9595

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