Press Article

PEI Keynote Interview with Mounir Guen

MARCH 2015
From the Private Equity International Latin America Special 2015 - A PEI Supplement

New Horizons - a PEI interview

Local private equity fundraising remains strong as many LPs eye domestic promise, but as pension fund coffers fill, they will start to look further afield for returns. Mounir Guen of MVision discusses the implications for the market.


Even despite economic woes in some key Latin American markets (recently Brazil), private equity fundraising across the continent has been holding up well. Last year saw a notable increase in total capital raised in the region to $6.3bn, according to PEI Research & Analytics, up from $3.3 billion in 2013, but down on the peak 2010-2012 period. This increase is in contrast to many other emerging markets (except emerging Asia), which saw either declining or steady fundraising totals. 

A growing amount of this capital is coming from international limited partners as investors become more comfortable and familiar with the Latin American demographic and economic growth story. Indeed, in a recent EMPEA survey of LPs, Latin America (excluding Brazil) was highlighted as the most attractive emerging market for private equity investors. “Most investors now have some exposure to Latin America,” explains Mounir Guen, founder and CEO of MVision. “They usually start with one or two pan-regional funds and, as long as the firms have a presence throughout the region and have generated consistently good returns, LPs tend to re-up with them.” This means there is a steady supply of international, as well as local, capital for these larger, pan-Latin American funds. 

Yet the situation for country-focused managers is somewhat different. Many still rely on the growing pools of local capital available – and it’s easy to see why. In 2012, local institutions had $2.2 trillion of assets under management, a figure that’s predicted by consultancy Strategic Insight to grow to $6 trillion by 2020. Of this, pension funds will account for $3 trillion, and this figure doesn’t take account of the increasing amounts of high net worth Guen: local GPs must institutionalise capital that reside in the region. 

Added to this uplift in AUM is the fact that many of the region’s LPs are looking to increase their allocations to private equity. The latest LAVCA/Coller Capital LP survey demonstrates this trend: it found that, while around 25 percent of international LPs were seeking to increase their exposure to private equity during 2015, the figure for Latin American LPs was far higher, at 61 percent. 



For the time being, this means the outlook for local fundraising is highly positive, as most Latin American LPs have a domestic bias – often necessarily because of the restrictions placed on the amount of overseas private equity fund investment pension funds can make. 

The effect of this bias and these restrictions is also leading to a high appetite for co-investments and direct investments among Latin American LPs. The LAVCA/ Coller Capital survey, for example, found that over 50 percent of Latin American LPs were seeking to make co-investments in the region over the next three years (a similar proportion of international LPs said the same), but that over 30 percent of local LPs were actively looking for direct, proprietary deals (versus just 14 percent of international investors). “As the assets under management at these LPs increases, they have a volume of capital that needs to be deployed,” says Guen. “As a result, it’s natural that they should look to make direct investments in local businesses. Given the size of the private equity funds market locally, the volume of capital means LPs have to do this if they want to invest their allocations.” 


Nevertheless, as the pension fund markets develop further in the region, there will be a gradual loosening of restrictions on where they can invest. In Mexico in particular, there is expected to be some easing of overseas investment limits over the next few years as pension funds seek to achieve diversified portfolios. Brazilian pension funds are already able to invest up to 10 percent offshore, although few currently reach this limit. Yet there are signs that some institutions are starting to think more globally. “In Brazil, we are seeing LPs spend a lot more time with international gatekeepers,” says Guen. “They are getting prepared and so when they do decide to look overseas, their international exposure will evolve very quickly.” 

Given that these two markets make up a substantial share of pension fund assets and that they currently have around a 100 percent domestic exposure, a shift towards more international private equity fund commitments may have a substantial effect on fundraising by local funds. “You only have to look at other markets that have made this shift,” says Guen. “In Sweden and Australia, for example, you had a situation where local GPs relied heavily on local funding. Once LPs started looking internationally, re-up rates for local GPs dropped from 100 percent to as little as 30 percent. The effect in Latin America may not be as dramatic, but GPs need to prepare for this.” 

In addition, Guen says that, as Latin American LPs increasingly seek out advice from international consultants, so the trends apparent in the US and Europe are reaching the region. “LPs in Latin America are reverting to the mean,” he says. “And by that I mean that they are seeking fewer GP relationships with which to deploy more capital.” 



Some GPs are starting to lay the groundwork by diversifying their LP bases. Mexico- based Nexxus Capital, for example, closed its sixth fund in 2013 at $550m, with commitments from overseas for the first time, including from the US, Europe and the Middle East. Brazil’s NEO Investimentos is currently on the fundraising trail, targeting $300m and seeking international capital for the first, with one $150m vehicle structured for local investors and another $150m vehicle tailored specifically to the needs of international LPs. 

Yet to attract this type of investor, many GPs will need to become more institutionalised. “The administrative aspect of fundraising becomes much greater once you start seeking more international capital,” says Guen. “There are differing fiduciary requirements, for example, but also the standards of reporting have to improve. Internal structures have to change and funds need to hire in professional finance departments that can manage global requests.” 

This may well mean many local GPs need to increase their fund sizes over time to adapt to international investor requirements and to ensure that they remain financially viable. And, of course, it’s likely to lead to an increased need for placement agent services in the region as funds seek advice on how to prepare for international LPs and on where to source new capital. 

While these trends may cause some upheaval among local GPs, the outlook remains promising. Local LPs may start reducing their re-up rate, but the signs are that international LPs are eyeing the market more closely. With pan-regional strategies under their belts, many are starting to look at a more granular exposure to the region. Pan-regional funds remain the vehicle of choice for LPs, with 73 percent of LPs in the LAVCA/Coller Capital survey saying they will access the market in this way over the next three years, over 30 percent of respondents also said they were planning to have exposure to Mexican funds over same period (up from fewer than 20 percent) and over 50 percent are looking at countryspecific funds in Latin American countries other than Brazil and Mexico (an increase on just over 30 percent currently). 


Click here to download the interview (PDF)