Edición 58, Finance

Private Equity in Mexico

By: Emilio Afif,


In recent years, private equity (PE) funds have grown exponentially. According to the Mexican Association of Private Capital (AMEXCAP, for its acronym in Spanish), by the end of 2015 there were more than 140 funds in Mexico, with cumulative capital commitments since the year 2000 of more than 29 billion dollars. The sector has doubled in the past seven years, but it is still incipient, as it represents less than 0.1% of GDP, below countries like Chile, Colombia and Peru. In the United States, this figure is close to 1.3%, according to the Emerging Markets Private Equity Association.

According to numbers of AMEXCAP 43% of capital commitments have been invested in real estate funds, 35% in private equity funds, 15% in infrastructure funds. The remainder corresponds to venture capital funds and funds that invest in other funds. Part of this exponential growth is explained by the fact that since 2007, following a change in regulation, pension funds (known as AFORES in Mexico) can invest in private equity funds through dedicated instruments called development capital certificates (CKDs), and public real estate trusts (FIBRAS).

One restriction of the CKD is that 100% of the resources allocated must be invested in Mexico, which significantly reduces the number of private equity funds in which an AFORE can invest and increases the risk by having all private equity investment in Mexico. Most of the resources invested in private equity funds in Mexico come from foreign investors. This is because some of the funds are international and because there are local funds that have foreign investors.

At the end of July 2016, the AFORES had allocated more than 155 billion pesos to CKDs and FIBRAS (5.5% of the total resources managed). However, the growth potential is still high, as the pension funds can invest between 25% and 30% of the total resources in CKDs and FIBRAS (except the less risky pension funds, which may invest only 5% in FIBRAS). Because of the need of long term investment vehicles, the demand for this type of instruments by the AFORES is very high. Out of the total amount issued by more than 55 CKDs, the AFORES own over 80%. The AFORES are willing to invest more but supply is still limited.

Since the end of 2015, AFORES can also invest in private equity funds through a new instrument, known as Project Investment Certificates (CERPI, for its acronym in Spanish). The instrument is similar to limited liability companies LLCs that is the vehicle used by investors in the United States, Canada and some European countries to invest in private equity funds. The main difference is that in the CERPI the technical committee formed by investors is not required to approve the investments, since this power rests within the investment committee of the private equity fund, which is normally formed by the partners of the fund and their investment team.

PE funds are managed by a team of professionals who, thanks to their career and reputation, obtain resources from institutional investors, such as insurance companies, pension funds, foundations, sovereign funds, ultra-high-net-worth individuals, family offices, banks and other financial institutions.

In general, the intention of a PE fund is to invest and then improve the company during five years. After that they will try to sell it and get an internal rate of return between 25% and 30%, and a multiple over invested capital above 2.5 times. The fund may sell the company to a strategic investor (competitors, suppliers, etc.), to a financial investor (private equity funds, family offices, etc.) or to the public via an initial public offering (IPO).

The private equity industry can be divided according to the type of company in which the fund will invest.

1. Venture capital funds. They try to invest in recently created companies (startups). These companies have a high growth and high risk profile. Depending on the stage of development in which a company is, this sector can be subdivided into the following:

  • Seed capital. They invest in an idea or project. Normally these companies have recently been incorporated and do not have a proven business model. Their income is very small or non-existent. Angel investors and online crowdfunding platforms are in this segment. The amount of the investment may be up to 500,000 dollars.
  • First round or Series A. The amount of the investment is between 500,000 and two million dollars. In general, resources obtained are used to cover the operating costs of the next six to 24 months.
  • Second round or Series B. The amount of the investment is between two and five million dollars. The objective is to obtain the resources to consolidate and grow a company. At this stage, the companies have already reached breakeven.
  • Growth capital. This is the last level of venture capital. The investment amounts exceed five million dollars. The goal is to grow companies and improve their profitability.

2. Private equity funds. They invest in mature companies that are already established. The funds of this segment are classified in accordance with the investment strategy.

  • Leveraged buyouts (LBO). A high percentage of debt is used to finance the acquisition granting the shares of the company and its assets as collateral. The idea is that for a period of between five and seven years the company grows and pays down the debt with the cash flow generated by the operation.
  • Expansion capital. It is invested in companies that require resources to continue growing rapidly, either through acquisitions of other companies, with new products or in other markets.
  • Distressed. It invests in companies that are going through a difficult time. Normally they carry out a financial and operational restructuring to avoid bankruptcy.

3. Real estate funds. Financing of real estate projects.

4. Infrastructure. Financing of projects such as power plants, roads, water, telecommunication, etc.

Private equity and venture capital funds help companies in which they invest to strengthen their competitive advantages by making the most of their financial, operational or institutional opportunities. Generally, the companies in which they invest benefit from better corporate governance, financial and operational analysis, accelerated value creation and improved decision-making.

In conclusion, the objective of PE funds is to create value in the companies in which they invest in order to generate attractive returns for their investors. This brings significant benefits to entrepreneurs, society and the government because it favors growth in companies, creates job opportunities, boosts the economy and by professionalizing and institutionalizing the companies it makes payment of taxes transparent, and strengthens the enforcement of labor, environmental and social responsibility standards.


AMEXCAP (2015). Capital privado y emprendedor. México, RiskMathics.

EY (2015). Estudio sobre la industria de capital emprendedor en México.

KPMG (2015). El impacto del capital privado para las empresas en México. 17 casos de éxito.

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