Private Equity: The Enduring Advantages

During the last few months, those of us representing the private equity industry have witnessed a promising landscape. Experts in medium and long-term investments are reaffirming their commitment to Mexico as the great convener of investments, emphasizing its appeal to both domestic and foreign investors.

Our efforts during the year to convene, talk, and meet with the participants of this industry have been, in a word, successful. This is a sector that makes decisions to invest billions of dollars daily and is eager to discuss the country, its potential, and, most importantly, its future. This industry, with a track record in identifying and capitalizing on opportunities worldwide, focuses on maximizing returns through strategic risk assessment. These professionals, with their sights set on the potential of every market, view challenges as opportunities, combining optimism with analysis to foster growth in various scenarios.

One thing is clear: Mexico’s attractiveness as an investment destination is strong and enduring. The country has over 120 million inhabitants, a rising wage bill, an increase in formal employment, and a gradual decline in poverty. Additionally, Mexico's geographic advantages — its proximity to one of the world's largest markets and its wealth of renewable and non-renewable natural resources — further enhance its appeal.

Mexico also offers a diverse range of investment opportunities across numerous industries, from electronics to energy. Its competitive labor costs and transportation infrastructure place it in a favorable position for nearshoring and friendshoring. The integration between Mexico and the North American trade bloc is a reality that is also irreversible, bolstering the production of goods and services. The country benefits from multiple trade agreements, a solid and expanding industrial sector, and a young, increasingly skilled workforce. Together, these factors, coupled with an economic outlook that favors innovation and infrastructure development, position Mexico as a competitive and attractive destination for global investment.

Finally, Mexico has a well-established structure of pension fund managers. In the next 10 to 15 years, these funds could potentially double their resources, which would enhance their capacity to finance a wide array of companies and projects through the private equity sector. With over 20 years of experience, private equity has proven to be a profitable and effective tool for driving economic growth and generating value in strategic sectors across the country.

Taking the Initiative

The surge in the private equity industry in Mexico during 2021 and 2022 was primarily driven by a combination of high market liquidity, low interest rates, and a favorable investment environment that emerged in the early stages of economic recovery from the COVID-19 pandemic. Private equity investment provided an opportunity to leverage the high liquidity of investors while offering higher returns compared to the low interest rates available on traditional bonds and public assets.  

The pandemic also accelerated digitization globally, and private equity played a crucial role in driving innovation in sectors such as technology, healthcare, and e-commerce. These sectors attracted significant capital as investors sought growth opportunities. In 2021, private equity funds reached record fundraising levels, reflecting investors' interest in diversifying their portfolios and capitalizing on the economic recovery.

Additionally, geopolitical conflicts in the Middle East and Ukraine have created an unpredictable landscape, compounded by the electoral environment in 2024, where more than 70 countries, including Mexico and the United States, are holding, or have held, elections.

Despite these challenges, there are reasons for optimism. Inflation is under control in much of the world, and interest rates are decreasing. Contrary to fears over the past two difficult years, the United States has not slipped into a recession. In Mexico specifically, foreign direct investment is projected to rise to over $38 billion in 2024, according to Banxico's September survey, with an additional $40 billion estimated for 2025.

In this context, the private equity industry plays a crucial role as a significant driver of investment and development in the country. Funds that invest in Mexico have proven to be vital not just in discovering, but also in creating medium and long-term investment opportunities.

Looking at the positive side, the private equity industry remains optimistic about Mexico's great growth potential. This encourages us to be more proactive as an industry, focusing on identifying opportunities, understanding how to engage with investors, and ensuring projects reach maturity in the next five to 10 years. 

We have a responsibility to actively contribute to boosting the Mexican economy. Private equity and venture capital funds are particularly skilled at effectively capitalizing on nearshoring opportunities within specific projects, regions, and companies.

There is an abundance of opportunities across various industry sectors that demand the full attention of experts in the private equity industry. Ultimately, when a fund invests, it is placing a bet on Mexico. In the coming years, we will witness the chance for our industry to play a significant role in promoting the country's development.

Liliana Reyes is CEO of the Mexican Association of PE and VC funds, AMEXCAP, a prominent leader in the financial and development industry. Has worked in project evaluation, technical assistance,e, and design, as well as development and administration of projects with international financial organizations. She actively contributes to various boards and committees and is an influential figure committed to economic development and innovation in Mexico. Her continued leadership has left a significant mark in the financial and entrepreneurship arenas.