Preqin has launched its first Latin America-focused report. “Preqin Markets in Focus: Latin America’s Growing Appetite for Alternative Assets” explores the emerging market and trends paving the region’s future in the alternatives industry. With diverse challenges and opportunities unique to the economies and investors in the region, this report reveals how Latin America is leaving the global pandemic behind and expanding further into the world of alternative investments.
The region’s gross domestic product fell an estimated 7.4% in 2020, according to the International Monetary Fund1, compared to the 2.4% decline of the broader emerging markets and 4.9% drop in GDP for advanced economies. The pandemic put some alternatives allocation plans on hold as investors throughout Latin America had to adjust for short-term liquidity needs.
However, over the long-term, Preqin sees a bright future for private capital in the region. Latin America’s growing middle class and early pension reforms have created a significant pool of assets to invest in private capital. The size of the private equity industry in Latin America has remained stable in recent years, despite challenges. As of June 2020, total AUM stood at $28bn, including $7.2bn in dry powder. Venture capital is a bright spot in the region. The arrival of SoftBank’s $5bn dedicated Latin America fund is starting to inject significant impetus into the sector, and government-backed incubators are creating an entrepreneurial ecosystem in Chile and Peru.
Read the 2021 Preqin Markets in Focus: Latin America’s Growing Appetite for Alternative Assets here:
Dave Lowery, Head of Research Insights at Preqin:
“The events of 2020, like in many other parts of the world, highlighted the need for innovation and development, a sentiment echoed by our partners in the Latam region. A common theme we have heard from these partners is an emphasis on putting that capital to work in high absolute return strategies. Indeed, venture capital is attracting a lot of attention. Funds focusing on digital technology have found success servicing the region’s attractive demographics; as the middle class grows, it is also young and hungry for new technology.”
Key Facts on Alternative Assets in Latin America:
The size of the private equity industry in Latin America has remained stable in recent years. As of June 2020, total AUM stood at $28bn, including $7.2bn in dry powder.
- Appetite for global alternatives is healthy among allocators in Latin America. An increasingly sophisticated investor base is eager to put capital to work with top performing GPs, both locally and globally.
- Recent reforms in Brazil may provide the stability that international private capital investors crave. A move towards central bank independence may help end the cycle of capital flight, inflation, and currency depreciation that has deterred some international investors. Social security reform promises to ease the country’s challenging fiscal position.
- Private pension funds in the region are increasing their allocation to international GPs. The institutional investor landscape in Latin America is dominated by large private sector pension funds. The private pension fund systems in the main markets of Mexico, Chile, Peru and Colombia stand at $447bn, with alternative allocations to move materially high.
- Venture capital is a bright spot in the region. Softbank launched a dedicated $5bn Latin America fund that has already injected significant impetus into the market, and government-backed incubators are helping develop an entrepreneurial ecosystem in Chile and Peru.
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1 https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update