UPDATE 1-Mexico equity funds see big cash infusions ahead

* Local market could see runoff from bets in Brazil

* Wary of bubble, Mexico funds happy with slow growth

(Adds detail on Darby in second paragraph)

By Patrick Rucker

MEXICO CITY, May 3 (BestGrowthStock) – Mexico’s private equity
market could balloon in size over the next few years as it
absorbs billions of dollars from local pensions and welcomes
refugee investors from Brazil’s overdeveloped market, local
fund managers say.

With roughly $7 billion in total assets, Mexico’s private
equity sector is relatively anemic, but it could expand to $12
billion in the next four years due to evolving investor
appetites, said Jaime Salinas-Solano, managing director of
Darby Overseas Investments, the private equity arm of Franklin
Templeton Investments.

“International investors see that they can buy the same
company in Mexico for five times (book value), what they would
have to pay nine times (book) in Brazil,” said Salinas-Solano,
who also heads Mexican private equity trade group Amexcap.

Compared with Brazil, Mexico’s investment market is seen as
a laggard, with its young private pension system, modest stock
exchange and major industries dominated by heavyweight
companies or even monopolies.

A tradition in Mexico of keeping businesses within the
family over generations and favoring debt financing has also
held back private equity.

Companies that would be ideal candidates for private equity
investment are either out of reach or simply too small for the
largest buyout firms like Carlyle Group, which came to Mexico
years ago but walked away after seeing scarce deals.

Smaller buyout firms, though, are staking out ground in
Mexico’s relatively unexploited market, said Jose Contreras
with Wamex, a local private equity fund.

“Look at countries like India and Brazil — they are heated
markets where competition for deals is very intense. That tends
to bring returns down for everybody. Mexico is not there at
all,” he said.

Last year, Wamex packaged a private equity investment using
a new security tailored for risk-shy retirement funds.

Analysts expect that Mexico’s 14 private pension funds,
known as Afores, will increase their private equity stakes by
hundreds of millions of dollars by the end of this year.

But even with strong growth over the next few years,
Mexico’s private equity market will probably remain low-stakes
for some of the world’s biggest private equity firms.

Brazil buyout firm GP Investments (GPIV11.SA: ) opened a
Mexico City office three years ago and seemed ready to make a
splash in Latin America’s second-largest economy, but that has
not happened.

“If you have a fund of over $300-$400 million dollars, it
is very hard to invest. The bulk of transactions in this
country are in the range of $30-$40 million dollars,” said
Joaquin Avila, a Carlyle Group veteran who stayed behind to
found EMX Capital, which makes bets on companies that serve
Mexico’s lower and middle classes.

Local fund managers expect Mexico’s private equity growth
to be slow and steady with more capital keeping pace with more
available deals.

“So far we do not have the problem in Mexico of too much
money chasing too few deals, and that’s a good thing. The pace
is right,” said Avila, speaking at an Amexcap conference held
last week.

Stock Basics

(Reporting by Patrick Rucker, editing by Gerald E. McCormick
and Chizu Nomiyama)

UPDATE 1-Mexico equity funds see big cash infusions ahead