SoftBank launches $3 billion Latin American Fund II

The Fund II announcement arrived as regional investments hit a record $6.45 billion in H1’21, according to Bloomberg. The investment giant will explore the possibility of raising additional funds. The initial fund from 2019 totaled $5 billion after being increased from its initial pot of $2 billion.

What you should know:
  • The fund will continue supporting seed-to-public-stage companies throughout the region with its 60-employee team. It focuses on e-commerce, digital financial services, healthcare, education, blockchain, and enterprise software.
  • Latin America Fund I has distributed $3.5 billion in investments to 48 companies so far.
  • Of those companies, 15 have either become or were already unicorns. There are only 25 unicorns throughout the entire region.
  • Its IRR thus far is 85%, giving it a fair value of $6.9 billion as of 30 June, 2021. The firm reported that the returns far exceeded expectations.
  • Its portfolio companies have seen substantial value uplift since its investments. For example:
  • 4.4x each for car financing platform Kavak and digital commerce platform VTEX
  • 2.6x for real estate platform QuintoAndar
  • 3.5x for Brazilian digital bank Banco Inter
  • SoftBank expects 2022 will be Latin America’s biggest IPO year to date
  • Managing partner Shu Nyatta noted that startup strategy in Latin America is oriented on inclusion, i.e., bringing underserved consumers and businesses, as opposed to disruption
 
(Inside Venture Capital)

Source: LAVCA, the Association for Private Capital Investment in Latin America

Latest LATAM “Soonicorns”

Great overview of the Latin American “Soonicorns” landscape from our friends at Mexican VC leader, ALLVP. Lots of our founder friends represented on this growing list of visionary companies solving big challenges!

Source: LAVCA, Crunchbase, Press Releases. ALLVP Research. Last update: 31st of August 2021

Brazil's banks to incorporate climate change risks into stress tests

Brazil’s central bank announced on Wednesday new rules making it mandatory for banks to incorporate climate change-related risks, such as droughts, floods and forest fires in their stress tests, starting in July 2022.

Central bank director Otavio Damaso said the new regulation aims to avoid potential financial instability stemming from climate-related risks. However, for now the central bank will not require additional capital to cover for potential climate-change related risks, leaving that decision to banks.

The move puts Brazil’s central bank among the growing ranks of financial regulators demanding climate-related action from banks. A few countries, including France and the Netherlands, have already launched stress tests incorporating climate-change related risks, and many others are in the pipeline, according to the Financial Stability Institute.

Brazil’s central bank is not prohibiting lenders from extending any loans, but the climate-change related risk analysis could make credit lines more expensive for certain companies and sectors if banks find it necessary to allocate more capital to assume the risks they have identified.

In April 2022, the regulator plans to launch its own stress tests for climate-change related risks, incorporating all banks under the same risk criteria. We anticpiate risk metrics similar to those announced by Bank of England which we highlight below.

The regulator also made it mandatory for banks to disclose climate-related information as part of financial reporting by July 2022, in accordance with the Task Force on Climate-Related Financial Disclosures (TCFD), set up by the G20’s Financial Stability Board guidelines.

The central bank also announced rules forbidding rural loans to projects on indigenous land or in certain areas in the Amazon biome. However, it delayed the creation of a “sustainable loan” stamp for projects that follow best environmental practices.

Central bank officer Claudio Filgueiras said the regulator is still discussing that framework with the agribusiness sector, which has criticized the proposed rules. In comments sent to the central bank in May, some lobby groups said the regulation could hurt vital financing. (Reuters)

SURA CEO remains bullish on Chile

This week Bloomberg featured a terrific interview with Ignacio Calle, chief executive officer at Bogota-based Sura Asset Management, on his outlook for Chile. SURA, which runs Chile’s third-largest private pension fund, says the calls from opposition presidential candidates to dismantle the retirement system are unlikely to go anywhere. And investors have been too pessimistic on the country, he says, with plenty of opportunities ready to be scooped up.

Investment banks are divided on what the risks are for Chile’s equity markets. Strategists at Bank of America Corp. and UBS Group AG cut holdings of the country’s stocks, citing rising political uncertainties, while JPMorgan Chase & Co. remains neutral. Santiago-based LarrainVial said the market has already priced in Chile’s institutional fragility, while BTG Pactual is overweight as risks are embedded in current valuations.

The S&P IPSA equity benchmark has lost 6.9% over the past three months in dollar terms, among the world’s 10 worst performances during that span. The peso has weakened 8% in three months, making it the worst performer among 31 major currencies. Yields on peso-denominated bonds due in 2030 have increased almost 150 basis points since June.

Calle thinks much of the angst is overblown. Markets have continued to function in many countries despite social unrest or left-wing governments, Calle points out.

And while several presidential candidates, including Gabriel Boric, the front-runner for November’s election, have said they want to replace the country’s private pensions with a state-run system, Calle thinks the idea won’t go anywhere. It would be practically impossible given the heavy fiscal and tax burdens required for the state to take over responsibility, according to Calle.

“Many times candidates are very aggressive during their electoral campaigns, but tend to moderate their speeches once they reach the presidency,” he said.

Across the region, Sura has about $147 billion in assets under management in Chile, Argentina, Colombia, Mexico, Peru, Uruguay, and El Salvador, and hopes to end the year with as much as $162 billion, Calle said. Three-fourths of those assets correspond to Sura’s pension operations in the region, with the rest at its wealth management and investment operations.

In anticipation of rate hikes, Sura this year shifted its portfolios away from fixed income and is overweighting equities in Chile, Mexico and Colombia. Some Chilean and Colombian stocks had been excessively punished even before the pandemic, Calle said.

Sura is also increasing allocation to alternative assets such as private equity, private debt, infrastructure and real estate investments, with a goal of increasing their weight to 15% from 7% today, Calle said. Its private equity portfolio should increase by 50% to $15 billion by 2025.

The company is also increasing its offering of real estate funds in Chile, Colombia and Peru to 20 by year-end from 15 today, and should add Mexican real estate funds soon. Calle expects pension funds will remain an important client of its infrastructure funds as they seek options in a world of diminishing returns.

And Sura’s own pension fund will be around for that, he says. (Bloomberg)

Source: Superintendencia de Pensiones de Chile. Data as of Oct 31, 2020

Lasso’s first hundred days

  • Administered nearly 20m doses and has fully vaccinated more than 9m people — 52 per cent of the population, according to Johns Hopkins University. The country has gone from having one of the lowest vaccination rates in Latin America to having the third-highest, behind only Chile and Uruguay and ahead of all the region’s most populous nations.
  • Ecuador has also rejoined the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) after a 12-year absence, a move that should encourage foreign investment.
  • Mexico to discuss a free trade agreement, a requisite if Ecuador is to join the Pacific Alliance trade bloc, which currently includes its two immediate neighbors Colombia and Peru, alongside Chile and Mexico.  (Financial Times)

Source: Our World in Data, World Health Organization, national sources, FT research.

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