One of Latin America’s biggest private equity firms is finishing a process to allow investors in its fourth fund to either sell their stakes in the pool or roll their interests into a separate vehicle that will house remaining assets.
The process on Buenos Aires-headquartered Southern Cross Group is notable in that it is one of the few – if not the only – fund restructuring of size to proceed through the coronavirus downturn, sources told sister publication Buyouts.
Most private equity secondaries activity has been paused as buyers and sellers try to get better visibility on performance.
Intermediate Capital Group was the winning bidder for restructuring of the 2010-vintage Southern Cross Latin America Private Equity Fund IV, which had almost $500 million of remaining net asset value across nine investments, the sources said.
Around half of Fund IV investors chose to sell out of their stakes in the fund at a discount. The rest chose to roll into the continuation vehicle, which has a five-year term, the sources added.
The discount at which LPs sold their stakes is unclear. Fund IV has been an underperformer in part because of currency devaluation in Brazil, to which Fund IV has exposure, along with Colombia, Mexico and Argentina.
Fund IV generated a negative 11.2 percent net internal rate of return and a 0.5x total value multiple as of 31 December, according to performance information from Washington State Investment Board.
Fairview Capital Group, formed by ex-PJT Park Hill executive Pablo Calo, worked as secondaries adviser on the fund restructuring, it is understood.
The process went through three rounds of bidding before ICG was chosen, the sources said. It also included a fairness opinion, one of the sources said. Some portion of the capital raised in the deal will be available for follow-on investing and helping to support existing portfolio companies, the sources said.
Southern Cross, which has around $2.9 billion in assets under management according to PEI data, has pondered restructuring older funds for several years. It worked with Evercore in 2017 and 2018 on options for its third fund, which closed on $751 million in 2007, and Fund IV, which raised $1.68 billion in 2010.
The firm raised its largest pool, Fund IV, at a time of enthusiasm among investment managers for investment in Latin America. The pool deployed into the teeth of a regional downturn as political turmoil roiled the region’s largest economy, Brazil, which devalued its currency. This ensured that investments made before the devaluation would be unlikely to recover to their initial valuations.
The fund restructuring is allowing LPs who want, or need liquidity, to get it, which became especially relevant as the economy crashed in the health crisis. The process launched in the fourth quarter of last year and persisted through the turmoil, even as pricing was adjusted in line with the market decline, sources said.
“This is validating everything people have said about GP-led [deals]” in terms of providing options for LPs in older funds, one of the sources said.