For years Mexicans have had to look in awe at Brazil and how their financial markets reacted to private equity. This was the capital, so to speak, of private equity deals in Latin America but now the situation is changing somewhat.
If we cast our minds back to 2011, 80% of private equity fundraising was through Brazil-specific funds in Latin America. On the flip side, Mexico’s share was just 5%.
Considering the fact that this was just five years ago, it makes Mexico’s rise all the more impressive. In 2015 their share improved to 29% – a mammoth 24% more than what it had been four years previously. Now, things have improved once again and Mexico is officially the best Latin America destination when it comes to private equity investments. It means that the likes of Javier García Teruel Avila, who has been incredibly successful in private equity deals through his homeland of Mexico over the past thirteen years, can benefit even further.
What has been the cause behind this improvement to Mexico?
For a long time a lot of people feared investing in the private equity industry in Mexico due to a number of reasons. Corruption and drug wars were a couple of the biggest reasons, but many were also cautious due to a lot of businesses in the country being family-owned. It meant that deals were always difficult to get through.
However, in 2009 everything started to change. It was at this point that the government announced a series of reforms, with one of the biggest being their law stating that mandatory pension funds could be used as private equity. Up to 10% of these funds can be used as assets and as the figures show, the country has taken full advantage.
How has the reform impacted wider society?
Looking at the bigger picture, it’s clear that the reforms haven’t just benefited private equity investors – but also the country as a whole.
The boost in this sector has meant that more jobs have been created, with some private equity groups employing over 175,000 people both directly and indirectly. As well as this, many family-run businesses have become much more professional because of the reforms, which also benefits the country substantially.
In comparison to other countries it would be fair to say that Mexico’s private equity industry is still quite small, and does lag behind the likes of the UK and USA. If we cast our mind back to Javier García Teruel Avila, who we mentioned earlier in the piece, it’s for this reason that renowned private equity investors like him have still persisted in the U.S. and Asian markets.
However, the future does appear much brighter for Mexican private equity investment. It has started to overtake other countries, courtesy of the reforms, and sits above the likes of Turkey and Russia in terms of its percentage of GDP. One now has to expect that further improvements will be made as those in the country start to take further advantage of the government’s acts.