MEXICO - Finance
Managing Director, Fondo de Fondos
Felipe Vila is Managing Director of Fondo de Fondos.
TBY talks to Felipe Vila, Managing Director of Fondo de Fondos, about Latin America investment prospects, portfolio diversification, and moving on from the pandemic.
Why did Fondo de Fondos decide to enter the venture capital industry?
We have launched new initiatives in the last year, and our venture capital part has grown considerably. We are in every new “unicorn” that has emerged, which I am pleased with. We operated in energy a little but decided to pause for obvious reasons, such as the petrol price. Following global tendencies, we launched fund for impact investing and made the first close at the end of 2021. We will make the last close this year. We will invest not only in funds that look for a market return but also in companies that want to make a social, ecological, and governance impact. They should not only comply with ESG criteria, but also value climate and social risks. They need to look actively for a positive impact.
How attractive is Latin America as a hub for investment?
Our interest area for investment lies in Latin America. We have a steady pipeline because there are funds in places such as Colombia, Brazil, Peru, and Mexico, which are pursuing adequate returns as well as taking care of social and environmental issues. We become signatories with some Mexican retirement funds administrators (AFOREs) for the UN for Responsible Investment program. This was another example of our progress. We have also seen opportunities to create an investment vehicle to finance Mexican SMEs with the same positive impact in social and environmental purposes.. There is significant interest from Mexican and foreign investors in technological innovation companies, and bigger funds that were never seen in Mexico before are entering the market. They are constantly looking for investment opportunities in Mexican technological companies, and this development has changed our company.
Why is it important to promote the benefits of collaborating with investors in Latin America?
The new initiative focuses on public investments, especially in public traded debt securities. For many years, the government used the legal reserve to finance its public debt but then stopped 45 years ago. At the time, the stock market was a huge financing source for SMEs, though this later stopped and was never brought back. If the stock markets started attending to smaller companies with short and medium-term issuances, for working capital or specific projects with a three to a six-year term, it would be an interesting financing source for these companies. These companies have had financing problems, and SMEs represent the majority of companies. Even if their productivity is lower than large companies, they attend to interesting markets and have positive impacts on generating employment. As a consequence, there should definitely be more financing sources than development and commercial banks and non-bank institutions. The investment vehicle that we will launch is a debt fund strictly related to the debt capital market.
In what ways are you further diversifying your portfolio in 2023?
In addition to the previously mentioned initiative, in the second semester this year, we will launch the Fund of Funds Mexico Venture III. It is a fund of funds destined to invest uniquely in venture capital funds and jointly co-invest with them. We are a comfortable co-investor for fund managers. We do not want to compete with other funds.
The pandemic crisis is about to end. How are you preparing for this transition?
There is a huge opportunity to solve some problems we faced. In 2020, we was extremely worried, and we sought to start defense strategies for the companies we had invested in, rather than continuing to invest. We started working with some fund managers to arrange short time credit lines for companies to finance cash flow deficit derived from sales reductions. Hospitality and restaurants companies in particular were facing difficult times, and we helped with their shortage of cash flow. All this kept us from investing. In 2021, things improved for us, as we had accumulated resources, and companies showed a certain resilience. Now, for the change of administration, I expect some sectors to accelerate growth. In 2023, we expect to return to the level of investing we performed up 1Q2020. We are observing an acceleration in investments in technological innovation companies, though it is a complicated sector. However, the energy sector is an interesting area for us to invest in over time. Private equity should be reactivated, though rescuing it will require a great deal of work. It is not only about Mexico; all of Latin America’s private equity is going through a difficult time. There is little interest from international investors, and most funds are having problems collecting capital to invest in all in Latin American countries.
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