Right after the political change that took place in Argentina in late 2015, we started the idea of being an active player in the Private Equity industry. Among many factors, the return of Argentina to friendly business policies and potential long term stability created the perfect environment. During 2016, after solving the holdout situation, we witnessed the return of Argentina to international capital markets and by the end of the year we launched Alba Capital Partners (www.albacp.com), a middle market private equity firm.
As we initiated contact with investors in Q2 2017, mixed signals came out of Argentina, with economic indicators showing a meager cumulative growth of 0.3% yoy in Q1. On the political side, the potential return of the previous administration started to threaten the comeback of private equity LPs to the country. One of the investors asked us the following question: “If we invest with Macri, do we then need to exit with Cristina?”. Just prior to the recent primaries, president Macri was asked what would be the consequences for Argentina, if the primaries showed a defeat by the government. He replied that the world would become much less enthusiast about the country. He was spot on in his answer. Fortunately the recent primaries results confirmed that the likelihood of the previous administration return is remote.
Indeed, during a roadshow trip after the primaries, we experienced a positive welcome from investors. We heard from them that Argentina has become the brightest spot in Latam to invest, or that even if the current government was defeated at the 2019 presidential elections, the expectation is that Argentina would not return to the previous administration policies. In the meantime, economic indicators have also contributed to this scenario: GDP accelerated with yoy growth of 0.5%, 3.4% and 4.0% during April, May and June. Cumulative YTD growth is now at 1.6%. Inflation is on its way down and relevantly August’s consumer confidence increased by 11.8% yoy and 12.1% over the previous month.
Argentina’s foreign direct investment as a percentage of GDP has stood at 1.9% over the last decade while the average for the region stood at 4.6%. This was mirrored by the lack of a meaningful private equity industry in the country. It takes more than a quarter of positive economic and political indicators for long term capital to return to Argentina, but the grounds have been set.