Why some investors like Latin America
Founded by former senior investors from Citigroup Venture Capital International, Australis Partners recently closed a $379 million debut fund. Australis makes control investments across the Pacific Alliance region in Mexico, Colombia, Peru and Chile. We asked managing partner Enrique Bascur about the opportunities Latin America offers private equity investors and how Australis plans to capitalize on them.
Why is now a good time to invest in Latin America? The downturn in the commodity cycle has lowered GDP growth expectations in many countries in Latin America. This, in turn, is resulting in more attractive and reasonable valuations. However, in the medium and long term, the fundamentals, particularly for the Pacific Alliance countries, remain very attractive. The economies of Mexico, Chile, Colombia, and Peru continue to have low inflation, solid real GDP growth, and low debt/GDP, underpinned by prudent monetary and fiscal policies. These economies also continue to benefit from favorable demographics with young working-age populations, the development of capital markets, greater access to credit, and a growing middle class. Therefore, while some sectors such as commodities face headwinds, sectors that are tied to domestic consumption continue to thrive.
What are the opportunities? As the middle class expands and gains purchasing power, their consumption habits change beyond staple products and services to higher-value and discretionary goods and services. More specifically, we see sectors including retail, health & wellness, financial, and education as presenting attractive investment opportunities for private equity investors. We also like businesses that benefit from infrastructure expansion and development. The improved quality and quantity of infrastructure such as roads, airports, utility networks, water systems, and waste treatment enhance productivity, mobility, and access. Therefore, we see sectors including housing, environmental services, and logistics benefiting from the infrastructure improvements being made across the region. Finally, we also see non-commodity exports, which also benefit from infrastructure expansion, as presenting attractive investment opportunities.
How does U.S. policy affect investment in Mexico? While there is uncertainty around NAFTA, sectors linked to domestic demand growth, and not dependent on exports to the U.S., continue to see interest by private equity firms, including U.S. funds. Our approach with respect to Mexico is to continue to focus on the country’s long-term underlying trends, which remain attractive.