Private equity and venture capital in Latin America in the aftermath of the pandemic: the new wave?
Friday 17 February 2023
Fermín Caride
Bomchil, Buenos Aires
fermin.caride@bomchil.com
Report on the joint session of the Latin American Regional Forum and the Closely Held Companies Committee at the IBA Annual Conference in Miami
Wednesday 2 November 2022
Session Co-Chairs
Paulo Coelho da Rocha Demarest Advogados, São Paulo
Mercedes Rodriguez Giavarini Mitrani Caballero & Ruiz Moreno, Buenos Aires
Speakers
Geert Aalbers Control Risks, São Paulo
Maria Tereza Azevedo Softbank Investment Advisers, São Paulo
Camila Goldberg BMA, Rio de Janeiro
Bill Parish White & Case, Houston
Antonio Pena Greenberg Traurig, Miami
The session was opened by Paulo Coelho da Rocha and Mercedes Rodriguez Giavarini, who introduced the speakers and noted that the session would refer to two main topics: the impact of the pandemic on private equity and venture capital, and environmental, social and governance (ESG) trends in LATAM.
On the first topic, Antonio Pena kicked off the discussion by pointing out how 2022 had run downhill from 2021, which was a record year for initial public offerings (IPOs) and special purpose acquisition companies (SPACs), with people having time and money to spend in the market because of the pandemic, including retailers that did not typically invest in capital markets. However, this frenzy had permitted companies that were not entirely sustainable or sufficiently sizable to conclude IPOs, which resulted in a perfect storm that now needs correction. Other panellists agreed and noted the growth in the technology sector triggered by people seeking apps and platforms that allow them to stay at home and do things online.
Maria Tereza Azevedo then mentioned that this correction has led to 90 per cent of 2021 IPOs assets [being higher than/being lower than/remaining at] pre-pandemic prices, has entailed a flight to quality and led to a swift move from growth to profitability, with markets that have more solid fundamentals. This has resulted in the current bullish market in the technology sector in LATAM, particularly Fintech.
The Co-Chairs then invited the panellists to discuss the second topic, particularly how new laws or regulations have been enacted to prevent companies from greenwashing, the risks associated therewith and how funds can assess those risks.
Geert Aalbers kicked off the discussion by stating how ESG was of the utmost importance, but at the same time, unclear in its scope. There is significantly greater emphasis on ESG in LATAM, particularly Brazil. Then the panellists discussed the main tools used to conduct due diligence procedures and how they compare to those for compliance.
Panellist Camila Goldberg then noted how ESG had gained huge importance, with an impressive change from the perception that people had a few years ago. She also referred to the Brazilian case, in which the regulator established non-mandatory disclosure for public companies as an incentive to improve practices and fight greenwashing, but which will create information asymmetry with private companies, which is particularly challenging for investment funds. Moreover, she mentioned that ESG standards are being included in regulated sectors as a requirement in public–private partnership (PPP) or privatisation procedures.
The conversation continued with Bill Parish mentioning that ESG was the new compliance. While compliance remains very robust, at least in terms of due diligence, new ESG requirements are appearing, including as conditions for M&A.
Answering a question from the audience, the panellists discussed whether China's reluctance to implement ESG standards may lead to the shifting of investments to other jurisdictions that may adopt ESG standards.