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Private Equity Funds, a boost for the development of high-impact projects

September 25, 2017

In just 11 years Colombia has advanced from having 2 Private Equity Funds to 87, mainly located in Bogota.

Since Private Equity Funds (PEFs) began operations in Colombia in 2005, they have become key to the development of high-impact projects in the country and in Bogota. In these 12 years they have fueled the growth of strategic sectors of the capital such as the development of new infrastructure, value-added manufacturing and technology platform services. The first-generation PEFs are currently beginning to reap their fruits, since investments are budgeted for 10 years, so this is a strategic moment, with concrete results, for attracting new players.

According to the Colombian Association of Private Equity Funds (ColCapital), in 2005 - the year they were regulated - there were 2 PEFs in the country. Over the next 11 years, through 2016, this figure increased to 87. This has meant a compound annual growth rate of 42%. In recent years new PEFs have emerged such as infrastructure, real estate and growth funds.

"The Private Equity Fund industry has proven to be an engine of economic and social development for Bogota and the country, since it has leveraged the business fabric of the city and contributed to the creation and formalization of new jobs. In addition, the industry has undergone significant evolution and development over the past 10 years," says Juan Gabriel Pérez, CEO of Invest in Bogota.

Between 2012 and 2016 the annual investment through PEFs was an average of USD 450 billion. [JH1] To get an idea, this figure was almost double the foreign direct investment in Latin America in 2015. This injection of capital has driven projects in different stages, from early growth until they reach the point of maturity.

As Pérez explains, attracting PEFs to participate in high-impact projects in the city is a priority: "Invest in Bogota is committed to continue contributing to the improvement of the business environment that facilitates the operation of Private Equity Funds, and so strengthen an intelligent alternative financing for the business and entrepreneurial fabric of Bogota and the region."

Bogota’s role in the sector is key for two reasons: first, it is home to nearly all of the PEFs; and second, it has projects that are attractive for such funds, either because they are executed in the city or are managed from there. In 2016 the areas in which the PEFs committed most capital were infrastructure, with an investment of USD 5.205 billion; the development of growth companies in different sectors (known as Growth Funds), with USD 3.346 billion; and the acquisition of accelerated-growth and mature companies (Buyout Funds), with commitments of USD 1.025 billion.

According to the 2016 Capital Managers survey conducted by ColCapital and EY Colombia, Colombia has emerged as an attractive country to invest in, because 80.5% of the funds interviewed said they would prefer Colombia as an investment destination. The other countries that were attractive to them were Peru and Chile in second and third place, respectively. This same survey revealed a latent optimism in the industry, since 85.5% of the PEFs interviewed believe that investment levels in the country will increase by 10%, or at least remain stable. This optimism is largely due to the success stories that are already tangible.

Groncol, for example, it is a company dedicated to designing and developing ecological and sustainable infrastructure projects leveraged by the PEF Corporación Inversor, and in the last 5 years has completed over 200 projects with 100,000 m² built. With the arrival of the investment fund in 2012 it went from developing 16 projects that year to 54 projects in 2013.

Another case in point is EMI, an Antiochian company dedicated to the provision of pre-hospital medical care and security and emergency handling services which managed, thanks to investments by the PEF Tribeca, to consolidate the EMI group nationwide, with plans to expand throughout Latin America. According to data provided by the Superintendence of Health, in September 2016 EMI had over 305,000 affiliates, positioning itself as the company with the largest membership in the country.

Looking ahead to the next five years, the main challenges to be faced by the industry are the revision of PEF regulations that the Financial Regulation Unit has budgeted, education in terms of financial culture, bringing companies to identify the PEF as a financing alternative, improving communication channels and making visible the impact of the actions taken to attract new investors and diversify output processes over and above the trading of primary issues, when projects mature and complete their cycle.