Private credit funds are diversifying into Latin America to drum up new investors as the $1.7 trillion industry endures the worst fundraising slump since 2020.

The likes of Adams Street Partners, Antares Holdings and Hayfin Capital Management are just a few of the firms eyeing growing pots of cash at pension funds as well as among wealthy individuals in the region.

“Capital is becoming scarce in the US and Europe, with funds struggling” to secure investment renewals, said Philippe Stiernon, CEO and managing partner at ROAM Capital, a Latin American alternative asset placement agent. “This challenging environment is pushing managers, even top-quartile ones, to diversify beyond their home markets.”

Many institutional investors in the US and Europe are full up on private credit, with allocations by some major pension funds and insurance companies surpassing 30% of assets. To deal with the problem of saturation, private credit funds have been going further afield, including the Middle East and Asia, or designing funds aimed at retail buyers.

In Latin America, private lenders can capitalize on growing wealth and a need by investors to offset risks in their domestic debt markets. Investing in loans of mostly unlisted American companies is seen as a safer bet.

“Pension assets in Latin America have grown a lot over the last decade or two,” said Jeff Schlapinski, managing director of research at GPCA, the global industry association for private capital in emerging markets. “They’re showing more appetite for alternatives, and investing in US managers. It has been a growing source of capital.”

Retirement managers in Mexico have been allowed to allocate cash to foreign firms since a 2017 law lifted restrictions.

In one of the latest moves, Muzinich & Co. has relocated its Madrid-based director in sales and marketing Jesús Belascoain to Miami to cover Latin American investors. Ares Management Corp. last year linked up with Brazilian firm Vinci Partners Investments Ltd. to distribute its products.

Brazilian hedge funds have been more active buyers of private and structured credit in recent years. They’ve been amassing more assets against a backdrop of an expansion of average wealth in the nation of more than 350% in the 15 years since 2008, according to UBS’s Global Wealth Report. Meanwhile, new legislation increased the tax burden for wealthy Brazilians who invested in hedge funds through exclusive funds, but cut taxes for local private credit funds.

Lenders are hoping that will make them a receptive audience for their offshore-based credit funds.

“Latin America is still relatively new to the alternative investments landscape, representing the last major frontier for LP growth,” said Stiernon at ROAM.

  - Bloomberg