Private Equity in Mexico

Private Equity in Mexico Market

source: ft.com

Overview

If you look at Mexico, you would see that it is mostly overlooked. Investors from all around the world went to many emerging markets in developing countries like India, China, but Mexico remains the most underemphasized private equity market in the world.

As we see from the above image, Mexico saw a 46.5% increase in the number of Private Equity and Venture Capital deals in 2016, to a total of 129 from 88 in 2015.

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However, while the whole world was staying on their laurels, private equity in Mexico has grown tremendously since 2000. Since 2000, the whopping US $14.9 billion has been committed to private equity investments.

Private Equity in Mexico

source: bain.com

Private Equity in Mexico - Capital Raised

source: bain.com

What’s more surprising is the fact that Mexico has actually grown more after the 2008 economic crisis while the other countries wane away their opportunities to capture growth. Since 2008, Mexico’s annual rate of fundraising has grown to the US $2.9 billion, almost six times what previously was.

And if we look at the stats of 2012, we will 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, PE fundraising has grown 56%, while in Asia, it was just 4%, and in the rest of the world, it was merely 2%.

There are few reasons for which Mexico has grown multifold in the last few years –

  • Economic & regulatory foundation: Increasing in PE activity isn’t a result of using a magic wand. No. It’s about a regulatory change in 2009, which allowed domestic funds to invest up to 20% of their assets in PE in Mexico. Since then, the pension funds took charge and invested around the US $4 billion in fresh capital.
  • Mexico became attractive for outside investors: In the 1990s, Mexico’s economic condition was volatile. But after that Mexican economy has got 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, it is expected that the Mexican labor force will grow to 15 million. And that steady growth in the labor force has offered a couple of structural advantages to Mexico. First of all, the labor force is skilled and is available at low-cost emoluments. Second, the managers in the Mexican country has a kind of affinity towards the West, which helps them grow way beyond their counterparts in other countries.
Private Equity in Mexico

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Source: Private Equity in Mexico (wallstreetmojo.com)

Services Offered by Private Equity Firms in Mexico

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

  1. Mexico’s growing economy: As already mentioned in the overview, there is a huge untapped market in Mexico which investors can take advantage of. And big, small PE firms in Mexico are tapping into the growing emerging PE market by investing in SMEs.
  2. Attractive market opportunities: There’s no crowd along the extra mile. Many firms are not ready to invest in Mexico as it’s not a popular destination among private equity enthusiasts. But things are changing fast, and Mexico has been ready for becoming one of the top-notch countries in private equity investments.
  3. Investments in niche areas of the market: Not all sectors of the Mexican PE market are attractive to the investors. But few niche markets are. For example, middle and small markets have been the focus of private equity in Mexico.
  4. Value creation: Focusing on a niche company and creating value is the ultimate aim of all the private equity in Mexico. Thus, this fourth stage of the PE life cycle is the most important of all.
  5. Pre-determined exit strategy: At the end of the day, PE firms in Mexico know where to put a stop in their services. Usually, it’s 3 to 7 years after which PE firms decide to take one of the three exit strategies. These three exit strategies are often pre-determined and calculated. These are initial public offeringInitial Public OfferingInitial Public Offering (IPO) is when the shares of the private companies are listed for the first time in the stock exchange for public trading and investment. This allows a private company to raise the capital for different purposes.read more (IPO), secondary buy-outs, and trade sales.

Now let’s find out the focus of Mexican private equity firms right now. As of now, the middle markets are the target markets for private equity firms in Mexico. No matter the size of the PE firm, the middle-market has become the most attractive market for all PE firms in Mexico.

List of Top Private Equity Firms in Mexico

As per EMPEA, here are the top fund managers in Mexico as of 31.12.2015. These funds are Mexico-dedicated funds. These funds are ranked as per the volume of capital raised. Let’s have a look –

List of Top Firms

source: empea.org

According to Preqin, the following are the top LP funds in Mexico as at 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: 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, have a look at these Top Private Equity Firm in the World.

Recruitment process

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 need to keep in mind that networking is a key thing if you want to get into a top-notch private equity firm in Mexico. Why is networking very important in Mexico? Because the market is emerging, and you wouldn’t get to know about all openings just by voyaging around the internet. To know about the internships and full-time opportunities, you need to be proactive and act as if your whole career is dependent upon it; 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 don’t get reasonable leads from the alumni network, consider going through your Linkedin contacts and see whether you can find any leads or not. You can also catch them in person 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. Needless to say, that to make your mark, you need to do summer internships. One wouldn’t cut. You need to go for at least two to three. Whenever you’re looking for internships, you need to look for full-time internships. There are two kinds of internships offered by private equity in Mexico.
    Part-time internships are 20 hours a week, and full-time are 40 hours a week. Part-time internships, you can do if you are pursuing your studies, and along with that, you want to get some hands-on experience. But full-time internships will help you learn the trade secret of private equity and eventually become a full-time employee or apply somewhere else for a full-time job. Without having a couple of internships, it’s difficult to get into a full-time private equity job.
  • Interview process: The interview process is similar to the US. As the managers in private equity firms in Mexico often have the cultural affinity of the west. As a result, the interview process goes on in a similar fashion. First, you need to go through an application process. If you’re shortlisted, you would be having 2-3 rounds of face-to-face interviews where you will be grilled to know whether you have 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 MD and one-two HR representatives who will be asking you few technical and fit questions to finally 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 won’t be an issue as most of the private equity managers know English. But knowing Spanish would be an added advantage for sure.

Culture

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

In Mexico, the average employee in private equity work 60-70 hours a week and sometimes more. The teams are smaller, and the major focus is on medium and small businesses. As a result, weekends are appreciated, and you would be having 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 to extend the work-hours during the week.

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

Private Equity Salaries in Mexico

If you’re looking for a great future, Private equity in Mexico would be able to provide you 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 of the matter is Mexico is not very attractive in terms of compensation. You would not earn well in the beginning. So, be prepared for that. According to Glassdoor, you will earn around the US $69,000 per annum, which is almost US $15,000 lesser than a new employee in private equity in New York.

If you’re working in London or New York, it doesn’t 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 can shift toward London/New York in the near future. Or else, you can also stay in your position in Mexico for some time because the private equity market in Mexico will soon reach its highest peak in a few years.

Exit Opportunities

If you work in PE in Mexico for some time and don’t seem to grow much, your exit option can be investment banking.

Investment banking in Mexico is pretty strong, and there are many global banks that have opened their offices in Mexico City. As it is one of the most untapped emerging markets in the world, investment banks have been taking advantage of the same.

You can work in private equity for some time and then eventually work your way toward investment banking. You may need to do a couple of internships in investment banking along the way.

Conclusion

There is a huge growth potential for private equity in Mexico. And many global private equity firms have already opened their offices to tap into the vast market. All you need to do is to stick to your jobs for a few years, and you would be able to experience exponential growthExponential GrowthExponential Growth refers to the increase due to compounding of the data over time and follows a curve representing an exponential function. Exponential growth formula: Final value = Initial value * (1 + Annual Growth Rate/No of Compounding ) No. of years * No. of compoundingread more in your salary and size of deals you would be handling.

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This article has been a guide to Private Equity in Mexico. Here we discuss PE in Mexico in terms of the services offered, list of top private equity firms, recruitment, Salaries, and job opportunities. You may also have a look at the following articles –