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