The Latin American private credit market is growing – slowly

Prudential Capital Group and Credit Suisse are setting their sights on the region, but volatility and ‘non-linear’ growth are challenges.

Two firms made moves in the Mexican market this week, but analysts say this activity is not a reflection of growth in private credit in Latin America as a whole.

Prudential Capital Group opened an office in Mexico City, and the new outpost for the investment arm houses five investors, with room to grow. “It’s a natural evolution of our investment history,” Marie Fioramonti, managing director and head of Prudential Capital Group’s cross-border originations, told Private Debt Investor, explaining the firm has been investing in Mexico for decades but has upped its business there in recent years.

“The Mexican market of middle-market companies is strong and growing, and there are favourable demographics and potential for GDP growth,” Fioramonti added.

Also last week, the World Bank’s International Finance Corporation issued a loan into the Mexico Credit Opportunities Trust II, which is run by Banco Credit Suisse (México). This vehicle is a holding company of Credit Suisse Asset management that has over SFr1 billion ($1.37 million, €1.20 million) in assets. The trust is meant to help support the mobilisation of resources to mid-size enterprises in that market and to help meet the demand of firms seeking long-term credit.

Although there is growth in private capital markets in Latin America, alongside the increasing presence of global firms and capital there isn’t enough data to show any emerging upward trends, Marianna Waltz, a managing director and certified financial analyst for Moody’s Investor Services, told Private Debt Investor.

“This trend is not linear,” Waltz said in terms of this expansion. “There is a significant amount of volatility in the numbers.”

Waltz said the volatility is partially due to politics, as election years tend to garner less outside investment, stifling consistent progress. It was partly for this reason that 2018 was not a significant year for Latin American private credit expansion, she said.

“Depending on the market of the economies, and so on, we expect moderate trajectory for growth for Latin America,” Waltz said. “We don’t expect robust growth that we’ve seen in past years. We expect the main countries in the region to grow.”

As of Q3 2018, Latin America devoted funds had pulled in $2 billion, according to PDI data, compared with Q3 2017, when Latin American focused funds raised $150 million. By Q3 2018 North American-focused funds had raised over $105 billion.