PE has a major role to play in the region’s future, with regulatory changes and increased pension plan investment leading the charge.
For many of the fund managers beating a path to Mexico City, Santiago or Bogotá, there is one thing on their minds: how to access the institutional capital held by Latin America’s pension funds as they seek diversification and higher returns for pension savers.
Due to its historically under-tapped private capital market, the Latin American region is one of great interest to managers worldwide. “Mexico is probably – alongside the Persian Gulf – the most attractive and interesting place for private markets fundraising,” Daniel Sanchez, head of alternatives at Nassau-headquartered multifamily office Axxets Management, said at an industry conference in Europe in September.
Sanchez points to about $600 billion of LP capital in the country, of which approximately 60 percent is from pensions, financial institutions and insurers, with the remainder in private wealth. In all of LatAm, the opportunity set is probably between $2 trillion and $3 trillion, with Mexico, Brazil, Chile and Colombia having the most to deploy, he adds.
“The opportunity set is huge, and we have really good tailwinds that are pushing us forward, including our demographics and robust internal market,” Sanchez says.
As the assets under management of Mexico’s pension fund managers – or ‘Afores’, as they are known locally – have grown over time, so too have their exposure to alternatives. Afores’ AUM rose to $359 billion as of end-June 2024, from $169 billion in 2018. That represents a 15.1 percent compound annual growth rate in US dollars over 2018-23, according to data from pension regulator Comisión Nacional del Sistema de Ahorro para el Retiro (CONSAR).
Mexican pensions’ investments in alternatives, meanwhile, rose from $10.3 billion at the end of 2018 to $27.8 billion by June 2024, representing a 2.7x increase relative to the percentage growth during this period.
The weighted average of Afores’ investment in alternatives stood at 7.8 percent as of mid-2024, up from 6.1 percent in 2018, according to CONSAR.
In Colombia, industry association Asofondos – which represents the country’s pension administrators (known as Administradora de Fondos de Pensiones y Cesantías, or AFPs) Colfondos, Porvenir, Protección and Skandia Colombia – reported that pension fund assets closed March 2025 with a total value of 467.7 trillion Colombian pesos ($110 billion; €95 billion). This represents 11 percent growth compared with the 421.3 trillion pesos recorded in March 2024. As such, pension funds continue to be the main investors in the Colombian private equity industry, accounting for 43 percent of the LP base in 2024, according to data from Colombian PE association ColCapital.
AUM growth in the Colombian and Mexican pension systems is driven by higher participation rates and greater minimum defined contributions. In Mexico, reforms were passed in 2020 to gradually increase mandatory contributions from 6.5 percent in 2021 to 15 percent in 2030. Colombia is also mulling major reforms that should increase contributions and expand participation in public pensions.
Increased diversification and driving greater returns for pension holders are two of the main considerations for pensions’ growing appetite for alternatives. For one, SURA Mexico – the $55 billion Mexican pension fund for eight million beneficiaries, which began investing in private equity in 2019 – is seeing 20 percent growth per annum and has backed funds managed by KKR and CVC Capital Partners, according to media reports. Meanwhile, Colombia’s largest pension fund – Porvenir, which has $48 billion of assets – has in recent years committed capital to funds managed by Ardian, EQT and Apax Partners, Private Equity International data shows.
As such, managers are flocking to the region’s capital cities. GPs, including the likes of Nordic software investor Monterro, which secured €1.73 billion across two funds, have tapped investors in LatAm for their latest vehicles, PEI data shows.
And it’s not just capital flows that are picking up pace. David Enriquez – a partner at secondaries firm Clipway, which is in the market with its debut offering – noted in a panel at the September conference that he had been to Mexico City about 10 times in the past 18 months.
Regional complexities
While LatAm offers attractive opportunities, success requires careful navigation of local nuances and knowledge of different dynamics among sub-regions and countries.
“I think that the mistake that is usually [made] by a lot of GPs is that they have a one-size-fits-all approach. It’s a complex market,” says Sanchez. “A pension fund in Calgary is going to be similar to Texas or to New York. This isn’t the case in Latin America: even within Mexico, there are particularities and differences between all of them, with regulations of their own. GPs have to tailor their approach to their particular audience.”
The Latin America region is not a uniform, homogeneous market. In Chile, for example, AFPs require GPs to have a minimum 10-year track record and at least $1 billion in AUM. Meanwhile, pension funds in Brazil aren’t allowed to invest in foreign alternatives. In Colombia, pensions can invest directly in alternatives, but overall limits for foreign alternatives remain.
“If you want to be successful raising capital in LatAm, first and foremost, you must have strong realised track record, consistent top-quartile performance, longevity of vintages, a stable and an aligned team, a differentiated strategy, and ILPA compliance,” Philippe Stiernon, founder and chief executive of Latin American placement and advisory firm ROAM Capital, tells PEI.
“Unfortunately, what happens with some managers that don’t have the proper guidance is that they don’t have the pulse of the patient. They come with a universal solution or pitch that essentially regurgitates how they sell their product in other markets, which prevents them from putting their best foot forward with the local LPs… You need to adapt to the unique market realities on the ground. The one-size-fits-all approach doesn’t work, and GPs that embrace this end up wasting everyone’s time.”
GPs looking to attract commitments also need to know that some investors require a portion of investments to be allocated to boosting the local economy. Bancoldex, a development bank headquartered in Bogotá, for example, expects that a portion of its capital commitments will be invested in Colombia’s real economy. The investor has backed funds managed by US venture firms DILA Capital and MatterScale Ventures, according to PEI data.
It’s important to note that pensions in the region are quite competitive, according to industry participants. They have become more ambitious over the past decade and are looking to invest greater portions of their holdings in both domestic and foreign private markets.
Unlike public pensions in the US and Europe, most do not disclose their GP commitments and only publish how much of their portfolio is in private equity. “The actual portfolio is an industry secret, because you don’t want everyone to know your portfolio. Then it can be easily replicated or you can make targeted bets against it,” says Sanchez.
Building a rapport is also key, said Clipway’s Enriquez in the panel on PE in LatAm. “As a GP raising capital in the region, when I’m in Santiago or Bogotá or Medellín speaking with pensions and family offices, relationship building is important. You’re in a meeting and you establish your credibility, you try to connect, and you’re talking about your family, your dog… The LPs want to get to know you more as a person.”
Along with regional presence, there must be a deep understanding of each investor’s investment objectives and knowledge of how to navigate within their unique jurisdiction. For GPs, having local knowledge of the pension system from which they seek to raise capital is essential, as there are clear distinctions in the allocation allowances, coverage, regulatory changes and domestic market competition for each system.
Stiernon says: “Everybody thinks of LatAm as this region that’s all-encompassing, but it’s really a collection of different countries with different priorities, regulatory frameworks, dynamics and levels of maturity. Colombia and Chile, for example, were the first two countries that started investing in private equity back in 2008-09, so today they have mature programmes and are doing mostly re-ups. Mexico, on the other hand, is more of a blank canvas. LPs are actively underwriting new GPs, because they started deploying capital into private equity in 2018… Mexico is now the darling of Latin America because it’s got very favourable tailwinds and lots of fresh dry powder.”
Stiernon adds that GPs trying to raise capital in the region need to be cognisant of unique market realities, regulatory frameworks, and individual investor needs and preferences. “What a Mexican LP is looking for may be different from what a Colombian, a Peruvian or a Brazilian LP may want. Even within each country, LP sophistication varies widely. Sometimes priorities overlap, but not always. It depends on what you are offering because you really have to create bespoke, tailor-made solutions – and address the specific needs of each individual investor, not just underwrite the country or the region.
“Some pensions, for example, use external consultants. The more sophisticated groups are looking to bring everything in house and have hired top-tier talent. Countries like Chile have a dedicated real estate bucket. If you’re a real estate GP, you’re better off focusing your efforts in Chile than trying to compete in Colombia or Mexico, where you are less likely to get traction given real estate competes with private equity,” Stiernon says.
Growing alts exposure
From 2013 to 2018, a slew of private equity firms opened offices in the region in order to expand portfolio companies’ operations, tap domestic institutional capital and build the aforementioned local knowledge right from the factory floor. These include Apax Partners and CVC Capital Partners in São Paulo; Ardian in Chile; and HIG Capital and Neuberger Berman in Bogotá, among others.
“Pension funds and family offices usually start with big brand names,” notes Sanchez. “They are training wheels for your investment committee, because everyone has heard of Apollo; everyone has heard of KKR and Blackstone. They know those firms and understand that they are important players in alternatives.”
Once you’ve made this start, he adds, a LatAm investment trajectory often takes a familiar path. “You present to your investment committee first the best possible value-based strategies that are the easiest ones to understand. You start going through maybe more of a mid-market approach, then a sector focus, and then a particular geography. After which, you add on secondaries, as well as co-investments and start weaving in other areas where you want to increase exposure.”
It wasn’t always like this. Pension reform in countries including Mexico, Colombia and Chile in recent years has paved the way for this relatively direct pathway to building a PE portfolio.
Prior to pension rule changes in 2019, Afores in Mexico could only invest in domestic private equity via a publicly traded vehicle called a CKD, or certificados bursátiles fiduciarios de desarrollo (development trust certificates). In 2019, the Mexican government liberalised the investment programme for pension funds and allowed them to diversify their local private equity investments with international investments (CERPI). With CERPIs, up to 90 percent of the total amount of the vehicle can be used to fund investments abroad.
This “opened the floodgates for Afores, and they were able to consider every investment opportunity, almost anywhere in the world”, Sanchez says.
In 2017, Chilean pension funds were allowed to invest directly in private equity without using a feeder fund structure. Previously, local pension funds had to invest through private equity feeder funds that had to be registered for public offer with the local securities regulator and managed by a locally registered asset management firm.
Stiernon notes that GPs should do upfront research and market mapping, especially on the regulatory front, before they embark on aggressive fundraising campaigns in the region. LPs appreciate GPs that speak to their actual needs.
“Working with a placement agent with a demonstrated track record of success, research capabilities and deep-rooted relationships goes a long way in securing an advantage. It’s irresponsible not to have a local partner – even the largest firms use them, since the market is so competitive. LPs have plenty of good options, and you need all the cheerleaders and help you can get,” Stiernon says.
The domestic scene
While implemented with good intentions, these wider regulatory changes have resulted in some negative outcomes. Limited participation from local capital has become an issue for smaller managers.
Scott McDonough, managing director at Mexico-based growth equity firm Alta Growth Capital, tells PEI that the change in pension regulation in 2019 has had unintended consequences for the domestic PE scene.
“The benefit of pension reform is that it generated more interest within the private equity world in Mexico from both a fundraising and investment standpoint. The downside is that because of the prior poor results, and now with the option to invest in US PE, the pension funds have abandoned the local landscape,” he says. “They invested very little in Mexican PE since 2019 and reallocated more capital to infrastructure and real estate.”
McDonough’s firm, which has raised $375 million across three funds and received backing from the International Finance Corporation and DEG, invests in sectors benefiting from the rising domestic consumption of goods and services in the Mexican and Latin American market. Alta GC is finalising plans for its fourth flagship fund, which could seek as much as $200 million, PEI understands.
The challenge in raising capital from domestic pensions, however, is that Mexican firms are basically competing with US managers. “Emerging market and Latin American returns have not delivered as well as the US. It’s a tough sell,” McDonough notes.
He adds: “And then you have all the complications of different currencies and international issues. That, however, is beginning to change as the interest rate environment has dramatically shifted… I think returns in the US are going to come down.”
He adds that for firms like Alta GC, returns have been driven by growth. “The US is going to have to start to shift that way, because the ability to use leverage as aggressively as they have been, or to get that same multiple expansion, that’s coming down. That bodes well for returns in Mexico. But it’s still very hard to fundraise, because LPs are very backward-looking.”
Larger managers in the region, including Patria Investments and Vinci Partners, meanwhile, have benefited from institutional investors’ increasing appetite for alternatives. Domestic LPs now account for a larger share of Patria’s LP base than in previous years, a spokesperson for the firm says, without disclosing figures.
Others, like Brazilian growth equity firm Kinea Investimentos, which was formed in partnership with private bank Banco Itaú, have attracted capital mainly from local institutional investors and high-net-worth individuals. Cristiano Lauretti, managing partner and head of PE at the firm, notes that Brazil has been a tough market for capital raising and deployment due to its currency depreciation and ongoing fiscal woes. “There’s been an exodus of foreign PE players in Brazil historically. Today, we see very few players that are active and have access to capital. It’s been a natural selection process in the domestic scene.”
A region of potential
Latin America stands at a critical juncture. Unlike several other major markets that are experiencing declining birth rates and population stagnation, the populace of Latin America is set to keep growing into the 2050s. However, average GDP growth is expected at 2 percent per year in the next five years, below its already low historical average, according to the International Monetary Fund and World Economic Outlook database. These estimates are also considerably weaker than emerging market economies across Europe and Asia, which are expected to slow but still grow by 3 percent and 6 percent per year, respectively.
While demographics are favourable in countries like Brazil and Mexico, the region’s population is ageing, and the share of the working-age population is reaching its peak. This means the workforce will have to step up productivity. Countries will also have to tackle poor governance and stringent business regulations, which constrain firms’ growth and the associated productivity gains.
In this evolving landscape, private equity will play a pivotal role. Data from industry association LAVCA shows that fund managers in the region secured $8 billion across 98 funds in 2024, primarily driven by commitments to infrastructure, natural resources and private credit strategies. However, fundraising for PE was down to $900 million, from $2.7 billion in 2023 and $5.2 billion in 2022.
The largest PE fund that closed in 2024 was Aqua Capital Fund III at $450 million. Meanwhile, 2025 began promisingly, with Vinci Capital Partners closing its fourth fund on $702 million.
Venture fundraising also decreased last year to $3.2 billion, from $4.9 billion the year before, according to LAVCA.
Established fund managers attracted an outsized share of total capital raised in 2024, signalling a continued consolidation of GP and LP relationships. M&A in the industry is also under way: last year, Vinci Partners completed its combination with Compass and acquired MAV Capital and Lacan Ativos Reais. Brazil’s Patria Investments also announced the acquisition of UK-based Aberdeen’s European private equity business, real estate manager Nexus Capital, and a strategic investment in Latour Capital.
Sector-wise, consumer categories are the main driver for PE in Latin America at 63 percent of total deal value, according to data from LAVCA, with restaurants, food and beverages, and education companies capturing the bulk of investment. Across asset classes, energy deals were the biggest driver for investment in Latin America last year, with $1.2 billion deployed across 26 projects.
Start-ups have been a bright spot for Latin America in recent years. The number of such firms backed by venture capital more than doubled between 2020 and 2023 to over 2,500, according to LAVCA. VCs deployed $4.5 billion in Latin America in 2024, an 8 percent increase year-on-year.
“Investors in LatAm today are primarily focused on discipline and transparency of economics: companies with proven unit economics, predictable cashflows and credible exit structures,” says Pedro Melzer, partner and head of private equity venture capital at Patria Investments. “At the same time, they are eager to access transformational innovation, particularly in applied AI.”
Melzer adds that Patria is able to provide liquidity solutions through secondaries for investors seeking to recycle capital while deploying capital into AI-driven innovation through venture capital and growth equity. “This breadth allows us to address the full spectrum of investor demand.”
Key areas of focus for investors include applied AI for productivity, fintech, energy and climate, healthtech and vertical software-as-a-service, according to Melzer. He adds that firms that have the ability to operate across both early and later stages, deploy smaller cheques to capture emerging disruptors, and write larger cheques to scale proven subsectors can provide investors with confidence in both defensive and innovative sectors simultaneously.
Overcoming challenges
While there are significant grounds for optimism, there are plenty of macroeconomic challenges still to contend with in Latin America. For decades, the region faced high levels of inflation, which severely affected economic growth and social welfare.
However, as of 2024, some of the region’s largest economies – including Brazil, Mexico, Chile and Peru – have managed to get something of a handle on this problem. According to World Bank and IMF data, average inflation in Latin America was 5.1 percent in 2024, a significant improvement from the 7.7 percent recorded in 2022.
The most noteworthy economic challenge that foreign private equity and institutional investors confront in Latin America is the dramatic volatility of many local currencies. For example, over the past two decades – ever since the adoption of the floating exchange rate regime – the currencies of the two most important economies in the region (Brazil and Mexico) have continually fluctuated and thus had a significant impact on the investment process.
In this evolving landscape, private equity will play a pivotal role. Data from industry association LAVCA shows that fund managers in the region secured $8 billion across 98 funds in 2024, primarily driven by commitments to infrastructure, natural resources and private credit strategies. However, fundraising for PE was down to $900 million, from $2.7 billion in 2023 and $5.2 billion in 2022.
The largest PE fund that closed in 2024 was Aqua Capital Fund III at $450 million. Meanwhile, 2025 began promisingly, with Vinci Capital Partners closing its fourth fund on $702 million.
Venture fundraising also decreased last year to $3.2 billion, from $4.9 billion the year before, according to LAVCA.
Established fund managers attracted an outsized share of total capital raised in 2024, signalling a continued consolidation of GP and LP relationships. M&A in the industry is also under way: last year, Vinci Partners completed its combination with Compass and acquired MAV Capital and Lacan Ativos Reais. Brazil’s Patria Investments also announced the acquisition of UK-based Aberdeen’s European private equity business, real estate manager Nexus Capital, and a strategic investment in Latour Capital.
Sector-wise, consumer categories are the main driver for PE in Latin America at 63 percent of total deal value, according to data from LAVCA, with restaurants, food and beverages, and education companies capturing the bulk of investment. Across asset classes, energy deals were the biggest driver for investment in Latin America last year, with $1.2 billion deployed across 26 projects.
Start-ups have been a bright spot for Latin America in recent years. The number of such firms backed by venture capital more than doubled between 2020 and 2023 to over 2,500, according to LAVCA. VCs deployed $4.5 billion in Latin America in 2024, an 8 percent increase year-on-year.
“Investors in LatAm today are primarily focused on discipline and transparency of economics: companies with proven unit economics, predictable cashflows and credible exit structures,” says Pedro Melzer, partner and head of private equity venture capital at Patria Investments. “At the same time, they are eager to access transformational innovation, particularly in applied AI.”
Melzer adds that Patria is able to provide liquidity solutions through secondaries for investors seeking to recycle capital while deploying capital into AI-driven innovation through venture capital and growth equity. “This breadth allows us to address the full spectrum of investor demand.”
Key areas of focus for investors include applied AI for productivity, fintech, energy and climate, healthtech and vertical software-as-a-service, according to Melzer. He adds that firms that have the ability to operate across both early and later stages, deploy smaller cheques to capture emerging disruptors, and write larger cheques to scale proven subsectors can provide investors with confidence in both defensive and innovative sectors simultaneously.
Overcoming challenges
While there are significant grounds for optimism, there are plenty of macroeconomic challenges still to contend with in Latin America. For decades, the region faced high levels of inflation, which severely affected economic growth and social welfare.
However, as of 2024, some of the region’s largest economies – including Brazil, Mexico, Chile and Peru – have managed to get something of a handle on this problem. According to World Bank and IMF data, average inflation in Latin America was 5.1 percent in 2024, a significant improvement from the 7.7 percent recorded in 2022.
The most noteworthy economic challenge that foreign private equity and institutional investors confront in Latin America is the dramatic volatility of many local currencies. For example, over the past two decades – ever since the adoption of the floating exchange rate regime – the currencies of the two most important economies in the region (Brazil and Mexico) have continually fluctuated and thus had a significant impact on the investment process.
