New global study finds that 70% of private equity firms plan to invest in LatAm in the next five years, ahead of Asia Pacific
Over 90% of North American-based GPs are set to commit capital to the region by 2026
Almost three-quarters (70%) of private equity firms are planning to deploy capital in Latin America over the next five years, according to a new study1, fuelled by attractive valuations and a growing appetite for cross-border deal flow as the global economy recovers from the Covid-19 pandemic.
The new study, ‘Recovery to Rediscovery: Capitalizing on a Changed Private Equity Landscape’, was commissioned by Auxadi, a leading provider of accounting, tax and payroll services to private equity, real estate and multinationals, and was based on interviews with 100 seniors -level private equity investors based in the UK, Continental Europe and North America with average assets under management of € 14.4 billion.
According to the report, the level of interest among GPs in Latin America as an investment destination outstripped Asia Pacific (62%) and the Middle East (60%), indicating that the trebling of deal flow in the region from 133 in 2010 to 400 in 20192 is set to accelerate sharply following a pandemic-induced lull during 2020.
Regionally, GPs in North America are the most attracted to Latin America, with 91% earmarking capital, ahead of both those in the UK (75%) and double the portion in Europe (46%).
Growing interest in Latin America among private equity investors reflects a widely held view that cross-border deal flow will continue to grow in popularity. Over a third (37%) of respondents expect that the volume of international transactions will bounce back to pre-pandemic levels by the end of 2021 and a further 40% expect this to happen in 2022. Just 16% predict it will take two years or longer (2023).
The research reveals the main challenges faced by private equity investors looking deploy capital in Latin America. Almost half (44%) cite the myriad jurisdictional differences in law and regulatory frameworks and compliance regimes. One in three (33%) flagged cultural differences and the misalignment on valuations between buyer and seller.
To mitigate the risks involved in cross-border transactions, the study shows that a sizeable proportion of private equity firms have already taken steps to outsource the running of some elements of their fund to third parties, with many more planning to do so in the future . For example, almost half (44%) already outsource regulatory reporting requirements and a further 38% said they will do so going forward.
Victor Salamanca, Chief Executive Officer at Auxadi said: “ Latin America is a region with great potential for capital-laden GPs, with its growing middle class and early pension reforms having created a significant pool of assets in which to invest And, a continued interest in investment for improved infrastructure.
Considered by many as the emerging market to invest in, GPs are fully aware that Latin America carries risks and quite a few multiple cultural, legal and regulatory differences that often make it difficult for international firms to operate with confidence.However, opportunities compensate far beyond risks and we’re seeing a dramatic increase in client demand for our services in Latin America thanks to our ability to combine local knowledge with a strict adherence to international best practice. “
To view a copy of Auxadi’s ‘Recovery to Rediscovery: Capitalizing on a Changed Private Equity Landscape’ report, please visit: www.auxadi.com/en/private-equity-report
Notes to editors
1 Research conducted by Pure Profile among a panel of 100 senior-level private equity investors in April 2021. Respondents were split evenly between the UK, Continental Europe and North America.
2 “Future of Alternatives 2025: Latin America’s Growing Appetite for Private Equity Exposure” published by Preqin in November 2020.
Local Knowledge – International Coverage
Founded in 1979, Auxadi is a family-owned business working for multinational corporations, private equity funds and real estate funds. It’s the leading firm in international accounting, tax compliance and payroll services management connecting Europe and the Americas with the rest of the world, offering services in 50 countries. Its client list includes many of the top 100 PERE companies. Headquartered in Madrid, with offices in US and further 22 international subsidiaries, Auxadi serves 1,500+ SPVs across 50 jurisdictions.