Looking for Latin American LPs

The number of secondaries GPs seeking capital from Latin American LPs has skyrocketed in the past five years.

By our last count, there are some 39 secondaries funds in market targeting a collective $33.37 billion. That adds up to a whole lot of road shows.

One of the least talked about but increasingly important stops for GPs on the fundraising trail is Latin America, where local pensions and family offices have been building up their alternatives exposure and expertise. Larger secondaries groups that have received commitments from Latin American LPs for recent vehicles include AlpInvest, HarbourVest and Lexington Partners.

If you compare the number of secondaries groups trying to raise capital in the region today verses just four or five years ago, “it’s expanded by two or three times, if not more”, according to Leo Festino at advisory firm Meketa Investment Group.

And with good reason, say various fund managers.

“There are a number of investors who are based in South America with an appetite for secondaries,” Adam Howarth, co-head of Partners Group’s private equity secondaries activities, told me. Latin American LPs that have backed Partners Group in the past include Colombian pension Porvenir and Chilean pension Habitat, according to PEI data. The firm’s latest secondaries fund received 10 percent of its commitments from LPs in the region.

Various sources noted those investors – mostly from the Andean region (Chile, Colombia and Peru) – are interested in the secondaries market for different reasons.  Some find the J-curve mitigation and ability to quickly build exposure appealing while others like to invest with secondaries managers that also have primary funds on offer.

And while many of the region’s LPs have only been permitted to start investing in alternatives over the past 10 to15 years, sources note they have quickly grown sophisticated and are keen to integrate secondaries opportunities into their investment programmes.

The pension for the Colombian arm of insurer Skandia recently told us why it’s keeping its eye on secondaries; though it’s not investing at present due to regulatory restrictions, it sees great value in the market and has in past committed to secondaries funds raised by Neuberger Berman.

Similar to Colombia, Peruvian pensions are allowed to commit up to 5 percent of their assets under management to private equity. In the past we’ve seen some of the country’s largest pension funds commit to secondaries funds, such as Prima’s commitment to a HarbourVest fund in 2007, but new reforms could bump that allowance up to 30 percent, leaving more room for potential secondaries commitments.

As more of the region’s LPs gain the ability and expertise to navigate the various alternative investment opportunities on offer, secondaries managers are increasing their focus on Latin America.

We’ve already seen some of the larger multi-strategy firms and funds of funds open up offices in the region to service clients (and source deals), including Capital Dynamics, Carlyle (AlpInvest/Metropolitan) and Pantheon. Perhaps in the future firms solely focused on secondaries will follow suit, in the same way they did in Asia a few years ago (Lexington opened its Hong Kong office in 2011 and HarbourVest opened in Tokyo in 2010).

This story has been updated to remove Skandia and Cuprum as limited partners in secondaries funds managed by Partners Group.