Private Equity In Mexico

The private equity in Mexico is a very wide and interesting topic of discussion in the global financial market. In spite of a lot of complications in the political and financial front, the market for private equity in Mexico has remained very active and booming.

There is a huge growth potential for private equity in the country. And many global private equity firms have already opened their offices to tap into the vast market. So, you only need to remain in your job for a few years. As a result, we will be able to experience exponential growth in our salary and the size of deals we would be handling.

If we look at Mexico, we will see that it is mostly overlooked. Investors went to many emerging markets in developing countries like India and China, but Mexico remains the most underemphasized private equity market globally. The economy has proved resilient to all the disturbances and fluctuations of volatile global market and has been experiencing stability in currency rates even though there is inflation in the economy.

source: ft.com

As the above image shows, Mexico saw a 46.5% increase in private equity and venture capital deals in 2016, to 129 from 88 in 2015.

If someone is new to private equity, then please check out these articles: -

• What is Private Equity?
• How to Get Into Private Equity?
• Private Equity Analyst Guide

However, while the world stayed on its laurels, private equity firms in Mexico has grown tremendously since 2000. Since 2000, a whopping $14.9 billion has been committed to private equity investments.

source: bain.com

source: bain.com

More surprising is that Mexico has grown more after the 2008 economic crisis while the other countries wane away from their opportunities to capture growth. Since 2008, Mexico’s annual fundraising rate has risen to $2.9 billion, almost six times.

If we look at the statistics for 2012, we may see that the active partners in the market have also doubled during these years (from 2008 to 2012). And if we compare the fundraising growth, compounded annually, we would see that in Mexico, private equity fundraising has grown 56%, while in Asia, it was just 4%, and in the rest of the world, it was merely 2%.

However it is to be noted that the country has imposed some restriction in the investment decisions of local pension funds operating there if they plan to put their money into the private equity sector of the country. For this reason, the private equity firms in Mexico follows fundraising procedures using public trusts or issue certificates related to investment in projects.

In Mexico, things are slightly different than those in other countries. Private equity firms in Mexico follow a lifecycle, which is how they offer their services.

1. Mexico’s growing economy: As mentioned in the overview, investors can take advantage of a huge untapped market in Mexico. And big, small private equity firms in Mexico are tapping into the growing emerging private equity market by investing in SMEs.
2. Attractive market opportunities: There is no crowd along the extra mile. Many firms are not ready to invest in Mexico as it is not a popular destination among private equity enthusiasts. But things are changing fast, and largest private equity firms in Mexico has been prepared to become one of the top-notch countries in private equity investments.
3. Investments in niche market areas: Not all Mexican private equity market sectors are attractive to investors. But few niche markets are. For example, middle and small markets have focused on private equity in Mexico.
4. Value creation: Focusing on a niche company and creating value is the ultimate aim of all private equity in Mexico. Thus, this fourth private equity life cycle stage is the most important.
5. Predetermined exit strategy: At the end of the day, private equity firms in Mexico know where to put a stop to their services. Usually, it is 3 to 7 years after private equity firms decide to take one of the three exit strategies. These three exit strategies are often pre-determined and calculated: initial public offering (IPO), secondary buy-outs, and trade sales.
6. Tax incentives – There are some tax benefits that the country provides to the firms if they plan to invest in companies that are not listed or are small businesses. These incentives are provided if the firms invest in Energy and Infrastructure Investment Trusts, which will lead to growth of energy sector and help in developing brownfield projects. Tax incentives are also there for putting funds in Mexican unlisted companies . this attracts investors at a huge level.

Now, let us find out the focus of Mexican private equity firms. Currently, the middle markets are the target markets for private equity firms in Mexico. No matter the size of the private equity firm, the middle market has become the most attractive market for all private equity firms in Mexico.

This sector is very much inclined towards infrastructure, real estate, and energy investment. The steady economic atmosphere of the country and firm rules and regulations have contributed to the growth, leading to more investments by international investors. Some added contribution to the largest private equity firms in Mexico has been made by skilled and low-cost labor, knowledgeable in terms of managerial and cultural experiences in this field.

As per EMPEA, here are the top fund managers in Mexico as of 31st December 2015. These funds are Mexico-dedicated funds. These funds are ranked as per the volume of capital raised. Let us have a look: -

source: empea.org

According to Preqin, the following are the top LP funds in Mexico as of March 2016:-

• Afores: Afore Banamex, Afore Coppel, Afore Inbursa, HSBC Afore, ING Afore, InverCap Afore, MetLife Afore, PensionISSSTE, and Profuturo GNP Afore.
• Endowments and Foundations: The University of North Carolina at Chapel Hill, University of Texas Investment Management Company, John S. & James L. Knight Foundation, KL Felicitas Foundation, Omidyar Network, Rockefeller Foundation, Soros Economic Development Fund (SEDF), and W.K. Kellogg Foundation.
• DFI/Multilateral Organizations: Bancomext, Banobras, Nacional Financiera (Nafinsa), CDC Group, Corporacion Andina De Fomento (CAF), DEG, Export Development Canada, Inter-American Investment Corporation (IIC), International Finance Corporation (IFC), Multilateral Investment Fund (MIF), Netherlands Development Finance Company (FMO), and Overseas Private Investment Corporation (OPIC).
• Others: 57 Stars, California Public Employees’ Retirement System, Conacyt, Focir, Fondo de Fondos, Gray Ghost Microfinance Fund, Instituto Nacional del Emprendedor, Japan Bank for International Cooperation (JBIC), JPMorgan Chase, Los Angeles Fire, and Police Pension System, Massachusetts Mutual Life Insurance Company, New Mexico State Investment Council, Northgate Capital, Okabena Advisors, PineBridge Investments, Promotora Social Mexico, Rockefeller and Co., and Sarona Asset Management.

Also, look at these Top Private Equity Firm in the World.

There are a few reasons which Mexico has grown multifold in the last few years: -

• Economic & regulatory foundation: Increasing private equity activity is not a result of using a magic wand. It is about a regulatory change in 2009, which allowed domestic funds to invest up to 20% of their assets in private equity in Mexico. Since then, the pension funds have invested around $4 billion in fresh capital.
• Mexico became attractive to outside investors: In the 1990s, Mexico’s economic condition was volatile. But, after that, the Mexican economy has gotten the required boost in the form of lower public debt, a lesser inflation rate (i.e., just under 4%), and gradual growth of GDP (around 3%-4% growth every year). As a result, the Mexican market has become an attractive market for outside investors.
• Structural advantages: In the next 15 years, the Mexican labor force is expected to grow to 15 million. And that steady growth in the labor force has offered a couple of structural advantages to Mexico. Firstly, the labor force is skilled and is available at low-cost emoluments. Secondly, the managers in the Mexican country have a kind of affinity towards the West, which helps them grow beyond their counterparts in other countries.

Recruitment in private equity in Mexico is not talked about much. But to be able to make your mark and get into the private equity market, you need to keep in mind the following things: -

• Networking: You must remember that networking is key to getting into a top-notch private equity firm in Mexico. Why is networking very important in Mexico? Because the market is emerging, you would not get to know about all openings just by voyaging around the internet. To learn about internships and full-time opportunities, you must be proactive and act as if your career depends because it certainly does.
• After earning your bachelor’s degree, you need to connect with the alumni network and find out whether anyone has been working in private equity or not. If you do not get good leads from the alumni network, consider going through your LinkedIn contacts and see whether you can find any leads or not. You can also contact them personally and tell your story about why you want to get into a top-notch private equity firm in Mexico.
• Internships: The next key thing is doing internships. To make your mark, you need to do summer internships. One would not cut. You need to go for at least two to three. It would help if you looked for full-time internships whenever you are looking for internships. There are two kinds of internships offered by private equity in Mexico.
  Part-time internships are 20 hours a week and 40 hours a week full-time. You can do part-time internships if you are pursuing your studies and want hands-on experience. But full-time internships will help you learn the trade secrets of private equity and eventually become a full-time employee or apply somewhere else for a full-time job. It is not easy to get into a full-time private equity job without a couple of internships.
• Interview process: The interview process is similar to the U.S. The managers in private equity firms in Mexico often have a cultural affinity to the West. As a result, the interview process goes on similarly. First, you need to go through an application process. Then, if you are shortlisted, you will be having 2-3 rounds of face-to-face interviews where they will grill you to know whether you possess what it takes to succeed. Usually, they look for analytical skills and hard-working components in a potential employee. The last round would be with the Managing Director and one-two H.R. representatives, who will finally ask you a few technical and fit questions to close the position. Always prepare for case analysis and presentation of hypothetical model analysis because these are too common in private equity interviews in Mexico.
• Language: Language would not be an issue as most private equity managers know English. But learning Spanish would be an added advantage for sure.

Mexico’s family-owned businesses take a large chunk of business in the private equity market. As a result, Mexican private equity culture is slightly different than the U.S. and the U.K. culture.

In top private equity firms in Mexico, the average employee in private equity works 60-70 hours a week and sometimes more. However, the teams are smaller, and the major focus is on medium and small businesses. As a result, weekends are appreciated, and you will have a healthy work-life balance.

However, Mexico has been on a growing spree; the pressure of clients often compels private equity employees to work on the weekends and extend the work hours during the week.

Mexican culture encourages social meet-ups, events, and people often socialize, network, and try to generate new sources of business.

These private equity firms in the country also invest in global startups. This explains why they have a cross border investment aspect in them, leading to attracting foreign investors entering the country.

However, there are some important challenges to be addressed by the top private equity firms in Mexico. From the point of view of policy decisions, the economy has made tremendous progress and created an atmosphere suitable for business to thrive by providing protection to investors, giving tax benefits to them and giving the pension funds more relaxation in terms of investments. But there still exists some useful policies that are not fully enforced, leading to confusion and losses. Such policies need refinements.

Some foreign and domestic investors also lack the understanding that working together is highly advantageous. Many financial institutions and investors have not yet explored the private equity market of the country assuming that the regulations are still lacking flexibility. Many entrepreneurs still do not want to explore the highly valued track record of private equity firms in the country and the value they can add to their business.

If you are looking for a great future, private equity in Mexico would be able to provide you with that. Its private equity market is booming, and in years to come, there will be more opportunities in Mexico than in New York.

However, the truth is that Mexico is not very attractive in terms of compensation. Therefore, you would not earn well in the beginning. So, be prepared for that. According to Glassdoor, you will make around $69,000 per annum, almost $15,000 less than a new employee in private equity in New York.

If you work in London or New York, it does not make sense to leave the job and come to Mexico. But if you are from Mexico, you can start in one of the top-notch Mexican private equity firms and soon shift toward London/New York. Else, you can also stay in your position in Mexico for a while because the private equity market in Mexico will soon reach its highest peak in a few years.

If you have worked in a private equity firm in Mexico for some time and do not seem to grow much, your exit option can be investment banking.
Investment banking in Mexico is pretty strong, and many global banks have opened their offices in Mexico City. As it is one of the most untapped emerging markets globally, investment banks have taken advantage of it.

Thus, the above is possible because most of the private equity firms in the market has been operating consistently over a long period of time.

You can work in private equity for some time and eventually work toward investment banking. You may need to do a few internships in investment banking.

This article is a guide to what is Private Equity In Mexico. We explain the services offered, list of top firms, recruitment process & culture, salaries. You may also have a look at the following articles: -

• What is the Term Sheet in Private Equity?
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• Clawback
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• Private Equity in Singapore