Darby Financial Services Strictly Private

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Darby Financial Services Strictly Private

  1. 1. The Future of Domestic Capital Markets in Developing Countries Conference Panel: The Role of Private Equity in the Development of Domestic Capital Markets Alejandro Schwedhelm
  2. 2. Darby Overseas Investments, Ltd A l eading investment advisor in emerging markets A leading investment firm that invests its own and client capital in emerging markets. Currently, the firm provides investment management/advisory services with respect to funds amounting to over $1 billion across five investment fields. Darby was established in 1994 by The Honorable Nicholas F. Brady, former U.S. Treasury Secretary and Chairman of Dillon, Read & Co. Inc. Mr. Brady serves as Darby’s Chairman. The firm’s CEO is Richard H. Frank, former World Bank Managing Director and CFO of the International Finance Corporation. FINANCIAL SERVICES <ul><li>Darby Financial Services </li></ul><ul><ul><li>Targeting bank and non-bank opportunities in Latin America, US Hispanic, and the US - Mexico border economy </li></ul></ul><ul><ul><li>Darby Regional Banking Fund, a specialized financial sector fund for Central America </li></ul></ul><ul><ul><li>Portfolio oversight and exit strategy for Darby’s financial sector investments </li></ul></ul><ul><ul><li>Mandate to create new funds for broader emerging market financial services investment </li></ul></ul>FIXED INCOME <ul><li>Darby Emerging High Yield Fund </li></ul><ul><ul><li>$12 million </li></ul></ul><ul><li>Darby Emerging Markets Income Fund </li></ul><ul><ul><li>$10 million </li></ul></ul><ul><li>Sub-Advisory Relationships </li></ul><ul><ul><li>$500 million CBO with Mass Mutual </li></ul></ul><ul><ul><li>Moneda Asset Management (Chile) </li></ul></ul><ul><ul><li>Etra Emerging Markets Income Fund (Italy) </li></ul></ul>PRIVATE EQUITY <ul><li>Darby Emerging Markets Fund, L.P. </li></ul><ul><ul><li>$150 million invested in 11 companies in Mexico, Brazil, Peru, Chile and Colombia </li></ul></ul><ul><li>Darby-BBVA Latin American Private Equity Fund, L.P. </li></ul><ul><ul><li>$250 million target </li></ul></ul><ul><ul><li>$100 million raised </li></ul></ul><ul><ul><li>Investment and further fund raising under way </li></ul></ul><ul><ul><li>Sectors : Consumer Industries, Retailing & Distribution, Financial Services, Oil and Gas, Telecommunications </li></ul></ul>TECHNOLOGY VENTURES <ul><li>Darby Technology Ventures Group, LLC </li></ul><ul><ul><li>Early stage technology investments in Latin America </li></ul></ul><ul><ul><li>2 portfolio companies in Brazil and Argentina </li></ul></ul><ul><ul><li>Transfer and adapt advisory services </li></ul></ul><ul><ul><li>Technology Centers </li></ul></ul><ul><ul><li>Sectors : Infrastructure Services; Enterprise Software and Networks Communications </li></ul></ul>MEZZANINE FINANCE <ul><li>Darby Latin American Mezzanine Fund, L.P. </li></ul><ul><ul><li>First dedicated Mezzanine Finance fund for Latin America - $195 million </li></ul></ul><ul><ul><li>8 investments - $114 million (telecom, port, toll roads, gas pipeline, water treatment, waste management) in Mexico, Brazil, Colombia, Bolivia, Argentina </li></ul></ul><ul><li>Asian Infrastructure Mezzanine Capital Fund </li></ul><ul><ul><li>First dedicated Mezzanine Fund for Asia - $246 million </li></ul></ul><ul><ul><li>9 investments - $187 million (telecom, transportation, power) in China, Korea, India, Philippines, Indonesia </li></ul></ul><ul><ul><li>Hong Kong-based team </li></ul></ul>
  3. 3. From the Panel’s premises <ul><li>Equity markets can create virtuous cycles </li></ul><ul><li>Private Equity can fill the need for equity finance </li></ul><ul><li>Private equity can help stimulate and professionalize domestic investment </li></ul><ul><li>Expectations have not been met </li></ul><ul><li>Critical success factors </li></ul><ul><li>Development of Private Equity Industry </li></ul>
  4. 4. Equity markets can create virtuous cycles <ul><li>No question. </li></ul><ul><li>Fundamental Obstacle: </li></ul><ul><li>Entrepreneurs see firms as their “baby”, not as the product of their work. </li></ul><ul><li>Two responses: </li></ul><ul><ul><li>Owners seek long term success </li></ul></ul><ul><ul><li>Transparency transforms “control” into “leadership” </li></ul></ul>
  5. 5. Private Equity can fill the need for equity finance <ul><li>Not under today’s international and local market conditions. </li></ul><ul><ul><li>Insuficient volume </li></ul></ul><ul><ul><li>High earnings expectations </li></ul></ul>
  6. 6. Private equity can help stimulate and professionalize domestic investment <ul><li>Definitely </li></ul><ul><li>Some characteristics of Private Equity: </li></ul><ul><ul><li>High perceived risk </li></ul></ul><ul><ul><li>High expected return </li></ul></ul><ul><ul><li>High administrative cost </li></ul></ul><ul><ul><li>High concentration </li></ul></ul><ul><ul><li>High participation </li></ul></ul><ul><ul><li>Professional oversight </li></ul></ul><ul><ul><li>“ Own” regulator </li></ul></ul><ul><ul><li>Cross-pollinization </li></ul></ul>
  7. 7. Expectations have not been met <ul><li>Volume? Results? </li></ul><ul><li>Re-visit the nature of Private Equity: </li></ul>Public Markets Venture Capital / Friends & Family Private Equity
  8. 8. Critical success factors <ul><li>Character & Ethics </li></ul><ul><li>Rate of return </li></ul><ul><ul><li>Entry valuation </li></ul></ul><ul><ul><li>Sources of value </li></ul></ul><ul><ul><ul><li>Organic growth </li></ul></ul></ul><ul><ul><ul><li>Strategic growth </li></ul></ul></ul><ul><ul><ul><li>Strategic acquisition / sale </li></ul></ul></ul><ul><ul><li>Risk – reward equilibrium </li></ul></ul><ul><li>Management </li></ul><ul><li>Exit strategy </li></ul><ul><ul><ul><li>Formula based put </li></ul></ul></ul><ul><ul><ul><li>Market sale (IPO or gradual) </li></ul></ul></ul><ul><ul><ul><li>Trade sale </li></ul></ul></ul>
  9. 9. Development of Private Equity Industry <ul><li>Avoiding over-regulation </li></ul><ul><ul><li>SINCAs in Mexico </li></ul></ul><ul><li>The market dilemma </li></ul><ul><ul><li>Optimized for quality or volume / liquidity </li></ul></ul><ul><ul><li>Private equity prefers the latter </li></ul></ul><ul><ul><ul><li>Implication: Grown-up investor does homework </li></ul></ul></ul><ul><li>Success stories </li></ul><ul><ul><li>For Private Equity investors </li></ul></ul><ul><ul><li>For investee companies’ shareholders </li></ul></ul>

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