News & Analysis

LatAm secondaries deals face low success rate

Mismatched price expectations between local sellers and foreign buyers are likely to results in 90% of deals stalling, according to Altamar's Latin America head.

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The success rate of GP-led deals involving Latin American private equity funds, which are increasingly considering the processes, is likely to be low, according to Altamar Private Equity‘s head of the region.

To secondaries investors, the continent’s many pre-crisis funds – which have significant remaining net asset value – are often overpriced in light of political and exchange-rate risk as well as the continent’s relatively short history of successful exits, managing director Alvaro Gonzalez told Secondaries Investor.

“We [secondaries buyers] are probably asking for discounts, in some cases large discounts, and the sellers are not willing to restructure the fund at those prices,” he said. “It’s mainly local pension funds, which are probably not willing to take losses on their books. There is a difference in the assessment of risk between international investors and potential sellers.”

In September Secondaries Investor reported that Enfoca Sociedad Administradora de Fondos de Inversión, a Peruvian private equity firm with $700 million under management, was to carry out GP-led processes on two of its funds, including its 2007-vintage, 693 million Peruvian soles ($213.7 million; €181.7 million) Enfoca Descrubidor 1. The aim was to “give more runway to investors” that wanted to stay and offer an out for the others, a source told Secondaries Investor at the time.

Gonzalez believes that while the deal has encouraged more conversations about possible restructurings, particularly among small- and mid-sized funds in Mexico and Brazil, the number of completed deals is likely to be low.

“I think that almost 90 percent will not go through… In order to have an active and liquid secondary market you need to have a large primary market and that’s not the case in LatAm yet,” he said.

A number of big secondaries players have offices in Latin America, including Lexington Partners in Chile, Partners Group in Brazil, and Pantheon Ventures and HarbourVest Partners, both in Colombia.

Madrid-headquartered Altamar Capital manages funds of funds and dedicated secondaries vehicles. It is raising its Altamar Global Secondaries IX which has collected €249 million of its €500 million target, according to PEI data.