Mexican Unicorns Pave the Way for Other Private Equity Investors

Q: How does AMEXCAP promote private equity investment into Mexico?

A: AMEXCAP has more than 18 years of experience in the private equity industry and represents over 100 funds and 50 affiliates. Our main objective is to promote the development  of the industry in Mexico, both nationally and internationally by connecting potential investors with our Funds providing reliable data and information. After Brazil, Mexico has the highest penetration of private equity in the Latin American region. AMEXCAP lobbies governmental and regulatory entities because the industry is relatively young, so there are many issues to be addressed to achieve a competitive playing field that will allow us to attract greater international and local investment. The sector also needs more fund managers and we are achieving that through training programs created alongside universities.

AMEXCAP is also the place to go for companies seeking statistical information. Through our members and other specialized sources, we obtain data on how the industry is growing, in which sectors and who are the players represented by each fund. More than ever, we are more active in promoting the private equity industry, which also includes promoting the country. We are committed to raise awareness about  why Mexico is a place of opportunities. Despite the pandemic crisis, the country continues to benefit from its geographic location, trade agreements and trends such as nearshoring. 

We believe there are many opportunities for new investments. Our challenges are to continue promoting the country and the areas of opportunity for local companies to raise capital. If a company needs to grow, it will invariably need not only venture capital but also other traditional sources of financing. Private equity is a key element for companies in attracting other types of financing in the long term.

Q: What needs to be done so both the region and Mexico recover their appeal?

A: There are many challenges but now more than ever the private sector has to be the main player  in this story. Unlike other Latin American countries, overall investment in Mexico comess mostly from the private sector. The entire private equity industry has raised close to MX$65 billion (US$3.2 billion) from all types of investors, such as national and international pension funds, insurance companies and family offices. Of this amount, about MX$40 billion (US$1.97 billion) has been invested, meaning that there are still numerous resources available to continue investing. We have the money but we need to approach more companies capable of accelerating growth and efficiency.

The growth has been mosre evident among startups, which cannot grow if they do not have venture capital investment  because they simply do not have the track record required by traditional banking. Mexico already has six  unicorns that were born in the middle of the pandemic, to the surprise of many. However, this did not happen overnight. They are all companies that have been working tirelessly in the last five years alongside funds. Today, we can say that investing in an industry that bets on risk and innovation pays off.

The emergence of these unicorns should prompt the government to resume its support of the private equity industry. Years ago, public policy supported early-stage funds through Mexican funds, such as those created by the National Entrepreneur Institute (INADEM). But the last rounds of capital have come from international funds. We have never seen such a strong presence of funds from the US, the EU and Asia. They are attracted, in part, to our large market. Scaling a project in Chile, which has about 18 million people, is not the same as doing it in Mexico. All the entrepreneurs in the region come to Mexico to scale and test their projects. 

There is also a large opportunity for medium-sized companies to approach private equity. Funds are specialists in helping, accompanying and accelerating companies. The challenge is for entrepreneurs to become aware of the benefits funds offer. Having a fund behind you is not only about having the resources to grow your business nationally and internationally, it also provides access to experts in strategic planning and geographic and market expansion. It also opens the door to additional sources of financing.

Q: What is needed to encourage the creation of new private equity funds?

A: We need to have more resources available. To do so it is necessary to raise more capital from actual y future fund managers If we do not create more funds, there will be no resources available for Mexican companies and foreign that want to come to Mexico in the near future.

AMEXCAP also works with local investors, including pension funds, which are crucial for the industry. We estimate that 40 percent of the capital raised comes from these players. But we know there is an opportunity for more pension funds to participate in private equity. Out of the 10 pension funds in the country, only four are very active. We also believe that there is a great opportunity for insurance companies to participate in this industry and in the economic development of the country. Now that we have proven results, it will be easier for an insurance company or a  pension fund to show interest in this industry.