Outlook for Private Equity in Latin America John C. Edmunds Professor of Finance Miami, May 2007

Promising Outlook The amount of money in private equity funds is large and still rising. Deals as large as $35 billion are being financed in the U.S., Europe and Japan. In the industrial countries, there may be too much money chasing deals. Rates of return might be declining.

Promising Outlook, 2 In Latin America many companies are possible targets for private equity investors. These companies have strong positions in local markets and can benefit from an infusion of capital, new ideas, and new additons to the management teams.

Liquidity Events Until recently private equity investors had only two ways of harvesting their profit. They could sell their shares back to the family that controlled the company; Or they could sell the entire company to a bigger company, often a multinational.

Liquidity Events, 2 Now there are rapidly growing local bond markets in several Latin American countries. Local companies that received private equity can now consider selling bonds. That allows those companies to raise enough money to buy out the private equity investors.

Liquidity Events, 3 In several countries, especially Brazil, there is now a market for initial public offerings of common stock. This fact creates another possible way for private equity investors to harvest their gains.

Liquidity Events, 4 Private Pensions Funds have grown rapidly in several Latin American countries. These funds buy locally issued bonds and stock. Local interest rates have declined steadily in several Latin American countries.

Liquidity Events, 5 Credit default swaps and other credit enhancements are increasingly available. These make it possible for private companies in Latin America to issue bonds and place the bonds in international markets. Trading volume in these instruments has risen 65% since last year.

Possible Impediments Many families that control local companies do not want to disclose in public documents how much their shares are worth. Many companies are operating in industries that are considered essential to the national interest and therefore not open to private equity investment.

Conclusion Opportunities for private equity investors are very good in several Latin America countries. Latin American markets are not yet saturated with private equity money. Exit strategies can now include public offerings of bonds and stock in local markets. Credit enhancements can facilitate these public offerings.