Latin America Private Equity
A Look at the Progress of Private Equity in Latin America
Today, I am flying to South America--this blog will still be updated with new articles and resources--it is my first time really traveling in the lower continent. So, I thought it might be interesting to do some research into private equity in Latin America and how the buyout industry is in this part of the world.
I have written previously about PE activity in South America--mostly Brazil because it has such a large financial industry--and I have provided links to those articles at the bottom of this one. I
recently read that private equity investments in Latin America are expected to reach a three year high and there is growing interest in this region from foreign private equity firms as well as Latin American buyout firms investing in local companies.
Still, many Latin American countries lag considerably behind more developed financial markets in terms of regulation, shareholder protections, established tax codes and in following internationally accepted accounting and legal practices. This is not to say that there are not great opportunities for buyout firms in Latin America--far from it--but it is important to note that progress still has to be made in the lower continent.
Latin America Private Equity and Venture Capital Scorecard
Chile and Brazil are among the most developed countries for finance and private equity but other South American countries are making progress. A really helpful tool for learning about Latin America's private equity and venture capital industries by country is the LAVCA's Scorecard. This resource rates different Latin American private equity countries compared to other parts of the world.
It examines the following factors to rate each Latin American country and its private equity industry:
- Laws on venture capital and private equity fund formation and operation
- Tax treatment of venture capital and private equity funds & investments
- Protection of minority shareholder rights
- Restrictions on institutional investors investing in venture capital and private equity
- Protection of intellectual property rights
- Bankruptcy procedures, creditors’ rights, partner liability
- Capital markets development and feasibility of exits
- Registration/reserve requirements on inward investments
- Corporate governance requirements
- Strength of the judicial system
- Perceived corruption
- Quality of local accounting and use of international standards
- Entrepreneurship
Here are the overall scores based on the above factors and how they compare to three countries around the world:
Argentina Private Equity 43
Brazil Private Equity 75
Chile Private Equity 76
Colombia Private Equity 60
Costa Rica Private Equity 54
Dominican Republic Private Equity 38
El Salvador Private Equity 43
Mexico Private Equity 63
Panama Private Equity 49
Peru Private Equity 51
Trinidad and Tobago Private Equity 56
Uruguay Private Equity 57
Israel Private Equity 81
Spain Private Equity 76
Taiwan Private Equity 61
United Kingdom Private Equity 93
For the full scores including how each Latin American country performed in the aforementioned criteria download this
free Latin America Private Equity report.
I was a little bit surprised to see how poorly Mexico private equity is rated but Chile and Brazil leading the pack is otherwise not that big of a surprise. My associate, Richard Wilson, works in Sao Paulo for a portion of the year and he describes a booming financial capital and from what I've seen and heard that is even an understatement. For evidence, see the picture below of Sao Paulo, Brazil:
Colombia, the country I will be spending most of my July, did not fare quite as well. This is largely because of its perceived corruption and failure to adhere to international legal and accounting standards. But it is still much more developed than Argentina or El Salvador (both 43 overall) and Colombia has improved on previous rankings climbing three spots. Private equity and venture capital account for very little of the country's GDP at just 0.05% compared to Chile's 0.14%. And as the following chart demonstrates, Colombia's private equity and venture capital ranking has climbed steadily whereas other countries improve one year and fall back the next (click to enlarge):
Data source: LAVCA Scorecard
This is really a great resource because it provides an explanation of each country's score and how they improved or failed in each category.
I hope this has been a helpful introduction to Latin America Private Equity.
I have previously written an article
Considering Private Equity in Brazil
Also see our article on
Brazil Private Equity
Note: I have sometimes interchanged South America and Latin America because there is not as much data available strictly on South American countries as there is for Latin America. Part of this is because there is an established association of Latin American private equity and venture capital, the LAVCA.
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Link to This Resource: Latin America Private Equity
http://privateequityblogger.com/2010/07/latin-america-private-equity.html
