Latin American Black Hole

After successfully launching a startup in my early twenties and then managing a multi-billion dollar product launch in Corporate America, my first foray in to venture capital was within the walls of Darby Overseas Investments, a global private equity firm with over $1 billion in capital under management led by Nicholas Brady, former US Secretary of the Treasury and Chairman of Dillon Read & Co. In a not-so-common transaction (of a PE firm) in late 2003, Darby was acquired and is now a part of Franklin Templeton Investments.

I was a founding member of a small team that, in the doldrums of 2000, marketed an early-stage venture fund for technology companies across Latin America - Darby Technology Ventures LLC. In an arguably very difficult economic period, we put together an impressive group of strategic shareholders, which included global leaders such as IBM, Comcast, Cemex CxNetworks, Bechtel, Franklin Templeton, and (obviously) Darby Overseas.

I've since moved on to another team, this time in New York rather than Washington, but as I was reading The Deal a few weeks ago I came across a story on Darby's very first private equity fund portfolio (vintage year 1994). The story is particularly interesting as it touches on many of the difficulties faced by the private equity asset class in developing successful investments in emerging markets. There's clearly a lot of money to be made in emerging market transactions, however there's also a lot more to think about when deploying capital - sovereign risk, exit potential, currency risk, corruption, partner selection, and much more.

I'm quite fond of this paragraph (excerpted from The Deal):

More than anywhere, Latin America has stood out as a black hole for private equity, a place where capital goes to die. In the 1990s, elite US and European private equity firms, seduced by the region's muscular if uneven economic growth, began wagering, and squandering, billions in the region. In the end, a rash of fiscal collapses and currency crises, most recently in Argentina in 2001 and 2002, induced many of the wounded to scale back activities or pull out of Latin America altogether. That turbulent backdrop makes the resilience of Darby Overseas Investments Ltd all the more remarkable.
But, I will caution that the book isn't finished yet and it's principal authors (Nicholas Brady and others) are no longer around to help write the conclusion...
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