The Mexican Association of PE & VC Funds (AMEXCAP) is the sole institution in Mexico that brings together this vibrant country’s private equity firms, venture capital and seed capital. Representing 75 investment entities, AMEXCAP manages more than USD $2.5 billion, targeting sectors such as consumer products, healthcare, transportation, financial services, media, telecommunications, real estate and infrastructure. KITE Invest met with AMEXCAP to talk about Mexico’s investment opportunities and emerging status in the global investment market.
KITE Invest: What are your thoughts on the reforms that have been passed by President Peña Nieto and the impact that the reforms have had on the disparate sectors?
María Ariza: The structural reforms are going to have a tremendous impact on Mexico in the sense that many opportunities are going to arise and draw new private equity investors to Mexico.
The energy sector, for instance, is already attracting new, big, international investors, as it had been closed to the outside. According to the reform, now private companies will be able to invest in large projects in exploration, extraction of hydrocarbons, refine and deep-water drilling among others. Large companies are already looking at these huge projects. They have the expertise and the necessary capital. AMEXCAP funds will potentially target businesses around these large projects, such as transportation, real estate needs such as industrial parks, hotels, restaurants, clean energy, etc.
In addition to the energy sector, there is telecom, infrastructure (the airport and railways), and manufacturing, so there are ample opportunities that will foster the economy. Lastly, there is the educational sector, and if this sector gets the expected reforms, it too will become another area for potential investment.
Foreign investors should look for a local investor to partner with in order to invest, and in this sense, AMEXCAP is playing the part to reach out and connect foreigners with locals. At the moment, there are still few local private equity firms that have specialized funds, but as the opening continues due to the reforms and as the industry itself matures, more specialized (sector-defined) funds will emerge. We present these funds are to institutional investors worldwide, not only the United States, but also investors within Europe, Asia and more.
KITE: As the economy of Mexico over last three decades has been stagnant in terms of GDP growth, do you think these reforms will be the remedy for the unlocking of the Mexican economy and boosting GDP growth?
MA: Mexico’s problem is tangibly related to productivity across the board. Ninety per cent of the companies in Mexico are small and medium sized enterprises (SMEs), and 72% of the country’s jobs are created by them. However the majority of these companies have low access to talent and highly skilled management.
As Mexico attracts investment, the economy will grow and so will this large group of SMEs, which they will then be able to attract and get a better skilled workforce, and this will impact the level of productivity.
The combination of productivity, education, and investment are the three pillars that will help Mexico and ensure that our economy is no longer stagnant like it has been in the past. I do foresee a bright future for Mexico with a GDP growth of 4.5 – 5 % in future years.
KITE: The reforms are usually linked to the major sectors, like the energy sector, but in fact the reforms are aiming to open and boost the entire economy, including the SMEs. In this regard, how do you view the advances being made by President Peña Nieto?
MA: President Peña Nieto sees the importance of investment and this is one of the main objectives of his administration. The President is constantly abroad seeking out investors, promoting Mexico, and finding ways for Mexico to receive foreign direct investment.
In addition to foreign direct investment, the Government is also getting very involved with SMEs as seen by the creation of National Institute of Entrepreneurs, which is encouraging and helping SMEs directly and also through the creation of 26 new seed capital funds that will invest in SMEs and this alone is very important for our country.
KITE: Private equity funds play an integral part in the economy, taking into consideration the funds provide financing, but also, professional development, structure, and ultimately making companies more productive. Can you shed light on how these funds help the growth and development of companies?
MA: Funds are very hands on; they address any operational concerns, become members of the boards, help them build relationships, and help lead the companies. And this is what private equity brings to the table: if we create value in the companies, we will create value in the economy improving Mexico’s overall productivity. The Government understands this value add very well.
If we continue with this growth trend, we believe that the private equity industry in Mexico will double its size in no longer than 4 to 5 years, due to investments by accredited institutional investors such as Mexico’s Compulsory Pension Fund System (locally known as ‘Afores’), investment by insurance companies, and investments and co-investments with foreign investors.
KITE: Mexico is still a young country in terms of private equity investment, making up around 6% within Latin America, compared to Brazil’s 60%. Why do you think private equity prefers Brazil? Is it a question of awareness and opportunities?
MA: Before the structural reforms there were few large size deals; therefore, it is possible that large international private equity firms and Limited Partners were not able to invest that type of large-scale capital. Now it is a completely different story as there will be interesting investment opportunities for large transaction sizes that will draw these investors to the region.
Furthermore, Brazil’s pension funds have been investing in private equity for a long time now, almost 30 years, and thus the penetration of the industry is far larger than in Mexico, where our AFORES started investing only since 2009.
KITE: As AMEXCAP represents the entire Mexican sector of private equity and venture capital; does AMEXCAP receive many requests from abroad and in particular, the UK?
MA: We receive many inquiries from abroad requesting industry reports and seeking general knowledge of the funds and of certain industries and sectors. I also receive enquires from investors, such as accredited institutional investors, Family Offices and Angel Investors, who are interested in Mexico as a potential investment opportunity.
In terms of the UK in particular, AMEXCAP is currently exploring the possibly of hosting an event in London next year. We believe that in the UK there is sufficient interest in the Mexican market, and the event would cover the main sectors and discuss how UK investors could invest in our funds or how UK based funds could co-invest with ours. Next year with the Dual Year, the sights are high and the interest looks good. It is important for AMEXCAP to go out of Mexico and attract investors, and now the European market is increasingly making more sense especially for diversifying from the US base.
AMEXCAP is hosting the 10th Mexican Private Equity Summit: Venture Capital, Growth, Real Estate & Infrastructure, March 25th-27th, 2015 in Mexico City D.F.
Find details here: www.foroamexcap.com