I GENERAL OVERVIEW

Over the past 15 years Mexico’s private equity (PE) industry has raised over US$42.571 billion in capital commitments to PE investments according to the Mexican Private Equity Association (AMEXCAP). Mexico’s strong industrial and manufacturing sectors along with recent reforms to policies and regulations have had a positive impact on the PE industry, resulting in double-digit annual growth for the industry.2 Currently, the number of active fund managers has reached over 168 active GPs from diverse sectors, growing sevenfold since the beginning of such industry in the early 2000.

The past three years gave way to the actual implementation of the first steps of the structural reforms approved by Congress in 2013, and Mexico is now about to experience the harvest of such legislative endeavours. In 2015, Mexico surpassed Brazil becoming the most popular destination for country dedicated private equity vehicles in Latin America;3 According to the Emerging Market Private Equity Association (EMPEA), Mexico dedicated private equity vehicles went from raising a modest US$152 million in 2008 to US$2.1 billion in 2015. Also, a survey from Coller Capital and Latin America Private Equity and Venture Capital Association (LAVCA) conducted among Latin American and International LPs, shows that Mexico is the country with the best risk to return ratio compared with other Latin American countries.

Mexico is showing a positive macroeconomic outlook with an approximate annual GDP growth rate of 2.5 per cent between 2013 and 2016. According to PRO México Trade and Investment, Mexico is one of the world’s most globalised countries, with 10 free trade agreements spanning 45 countries, nine partial scope and economic complementation agreements within the framework of the Latin-American Integration Association (ALADI) and it is a member of the Trans-Pacific Partnership Agreement (TPP), and 32 reciprocal promotion and protection of investments agreements with 33 countries. Mexico’s diversified export line is ranked 13th in the world and it is the seventh-largest car manufacturer in the world.4

In recent years the Mexican government has been an important player in the PE industry, investing in more than 71 funds5 through institutional investors such as Nacional Financiera, FOCIR and Bancomext, among others, through the fund of funds investment vehicle Mexican Corporation of Equity Investments (CMIC). In addition, the National Institute of Entrepreneurship (INADEM) has helped the Mexican venture capital industry (VC) and seed capital ecosystem, by investing or co-investing in 41 funds from 2013 to 2016. For 2016 the VC support changed to 100 million pesos targeting one fund with an approach to the Asia-Pacific alliance countries. Finally, domestic pension funds (AFOREs) have played a determinant role in the growth of the PE industry, having contributed with more than US$7.8 billion through 64 capital development certificates (CKDs) since 2009. This amount can further increase up to US$13.6 billion if outstanding capital calls are considered.

In general, information about PE funds is not publicly available during the fundraising stage, unless such funds are public funds raised in the securities market, such as CKDs or Mexican real estate trusts (FIBRAs).

The recent reforms are having a positive impact on the Mexican PE industry. Only within VC, Mexico has witnessed the number of GPs tripled in the past five years; infrastructure and energy funds have also increased significantly reaching 30 funds on 2016, a clear effect due to the energy reform that is allowing private investments on energy sectors, oil and gas, electric power generation and renewable energy.6

The Mexican fundraising market has been, since 2014, in an upward trend. In the past years the most attractive sector has been real estate, but recently the VC sector is clearly rising. Mexican PE funds are active, growing and covering a larger spectrum of industries (business and financial services, consumer goods, healthcare, technology, oil and gas, etc.). VC funds mainly invest in consumer services and technology, real estate funds mainly target the industrial, commercial, tourism and housing sectors, and the infrastructure and energy funds are currently concentrated in the oil and gas sector.

The current government (which came into office in late 2012) is still focused on the implementation of the reforms stemming from the Pact for Mexico. The Pact for Mexico comprises several subjects and items, mainly regarding the economy, anti-corruption, transparency and improving the Mexican rule of law. Regarding these, many legal reforms to the economic sector have been approved and enacted, such as reforms to the legal frameworks for the following sectors: labour, telecommunications, finance, tax and energy.

The energy reform, one of the most significant reforms in Mexico, which ended a 70-year chapter of restrictive laws in the oil and gas and electricity sectors, as well as the state monopoly on oil and gas production and in the electricity sector, has opened the investment and participation of private and foreign companies, including PE funds, in such industries. The Federal Electric Commission (CFE), in conjunction with the Ministry of Energy, has developed a strategy to increase gas transportation capacity through an expansion of the pipeline network in order to ensure gas supply for power generation. The pipeline network is expected to increase from 11,126km in 2012 to 20,895km in 2019. As of March 2016, there are approximately 20 CKDs that invest in the infrastructure and energy sectors that have risen over 80,500 million pesos.7

This constitutional and statutory reform is restructuring (some say creating) the Mexican energy industry, setting forth the framework for the participation of private investment not only in connection with hydrocarbons (including upstream, midstream and downstream activities) but also concerning the electricity industry. The implications for Mexico’s PE industry are considerable, especially now that the attention is shifting to its implementation. PE funds will be able to invest in the oil industry by investing in, or lending to, companies or consortiums of companies bidding in public tenders issued by the Ministry of Energy through the National Hydrocarbons Commission for the exploration and production of new oil fields. Considerable opportunities will also arise in any business relating to companies participating in midstream and downstream activities, such as petrochemicals and other transformations of hydrocarbons, and the transportation of oil and gasoline. According to AMEXCAP, Mexico’s oil and gas value chain could require between US$300 and US$400 billion dollars in capital expenditure through to 2020, promoting a considerable inflow of outside capital and creating an estimated 2 million jobs by 2025.8

Industries are changing and Mexico’s global competitiveness is increasing, reforms and governmental initiatives are modifying the structure of the economy to attract investments. The outlook is for Mexico to become a sophisticated design and manufacturing centre and not only a low-cost producer. A clear example is the state of Queretaro, which is growing into a new centre for the aerospace industry, with dozens of multinationals setting up shops in the state’s industry zone making the most of generous subsidies offered by the government. At the centre of this growth is Queretaro Aerospace Cluster, whose clients include Safran, Airbus, Delta and Bombardier.9

Private investment into Mexico’s energy infrastructure industry will experience strong growth as the energy reform’s measures begin to take hold; many other opportunities will also arise regarding electricity production projects (mainly combined-cycle gas plants and renewables) both for general and private consumption. We have already seen a significant increase in investment into the power sector and the gas pipelines required to fuel the new thermal power plants tendered by CFE. International developers continue to arrive; for example, Canadian energy firm TransCanada was awarded a US$550 million contract to construct a 420km gas pipeline from Tula in Hidalgo State to Villa de Reyes in San Luis Potosi. This adds to their midstream holdings in the country (which include a contract to build the US$500 million Tuxpan-Tula pipeline). A strong year is expected in the oil and gas pipeline industry through 2017, when a number of major projects will reach completion, for example the wind farm project ‘Tres Mesas’ carried out by the Spanish company Abengoa with a US$300 million investment.

The Mexican PE market has grown considerably over the past 16 years. The above-mentioned reforms, their proper implementation and a solid economic foundation will likely foster the growth of Mexico’s PE industry. Mexico is still viewed as one of the most attractive Latin American markets, not only because of its geographical position (sharing a border with the US), but also because of the number of trade agreements the country has in place, making preferential relations with 44 countries possible; a growing workforce; and fiscal prudence.10 We believe more firms will come to Mexico and benefit from such favourable conditions, and will continue to elevate PE fundraisings and to profit from the incentives arising from the newly structured legal frameworks, as seen during 2015 and 2016.

In connection with the foregoing, Mexico’s government introduced in 2015 two new investment instruments that will be used to promote Mexico’s economic development and in particular to boost the PE industry. In September 2015 the creation of ‘FIBRA E’ also known as the ‘Mexican MLP’ was announced. FIBRA E is an investment alternative in the form of an investment vehicle promoting long-term investment in Mexican qualified energy, electricity and infrastructure assets and the management thereof, to be traded in the Mexican Stock Exchange and offered locally and abroad. FIBRA E will allow private and public participants to monetise such assets under a tax regime that reduces levels of overall taxation and therefore opens the door for greater distributions. Certain amendments were made to the applicable regulations in April 2016, in order to make the instrument more appealing.

In December 2015, the investment project certificates or CERPIs were introduced. CERPIs will allow insurance companies, pension funds (AFOREs), and other (national or foreign) institutional investors to participate in equity projects in all productive sectors of the economy. This comes as a simplified version of the existing CKD providing for a larger scope of decision by the GPs and lower investment requirements for the investors.

As to the reception by potential limited partners of PE funds in the pipeline, public Mexican funds such as CKDs and FIBRAs will likely be received favourably by Mexican institutional investors (mainly Mexican pension funds) if the projects are adequately structured and follow the standard market terms and economics of such funds. As to private Mexican funds, their success will likely depend on the recent success and market credibility of the sponsors or GPs of such funds. As for the newly introduced FIBRA E and CERPIS, they had their first issuances taking place at the end of 2016, reflecting the industry’s appetite for financing new projects within the asset class.

Depending on the structure used to implement a PE fund, the time frame for PE fundraisings may vary. As an example, if the creation of a public PE fund is carried out through the issuance of CKDs, FIBRA Es or CERPIs the time required to raise such fund may range between six to 12 months. For purposes of clarity, PE funds are generally structured as a CKD (and as of 2016, CERPIs) to allow them to raise commitments from the Mexican pension funds (Afores), which have very restrictive investment rules and can generally only invest in projects through these kinds of securities. Such funds are formed through Mexican trusts created to issue the CKDs or CERPIs to be placed and offered through a public offering on the Mexican Stock Exchange (BMV) and managed by fund managers (GPs) incorporated in Mexico. Most CKDs are issued to invest in portfolio companies in Mexico subject to the investment policies determined by the sponsor. At the time of writing, over 56 CKDs have been issued to try access a portion of the billions of dollars managed by the Afores that can be invested in this type of security.

The same timeline applies for Mexican FIBRAs that raise capital through the issuance of real estate certificates, which are generally publicly offered in the BMV but can also be offered in foreign markets. The funds raised by FIBRAs can only be invested in commercial real estate projects and developments (industrial, retail and hospitality), and are structured as Mexican trusts to which real estate assets are conveyed by the original owners who, in exchange, receive real estate certificates.

The timeline for privately placed PE funds structured through Mexican or foreign vehicles will vary depending on the market conditions.

The Mexican VC has grown significantly reaching US$1.59 billion in accumulated committed capital for the last 16 years.11 Mexico’s VC sector is now an attractive market in which to invest; the Latin American Private Equity and Venture Capital Association’s latest survey reveals that limited partners have invested 248 per cent more in Mexico than in previous years. Mexico’s VC industry has 57 active fund managers, and 40 foreign GPs who performed at least one transaction in the last four years. In the same line, AMEXCAP registered 522 VC transactions from 2010 to September 2016 and, on the liquidity side, noticed 21 exits.

Below are recent deals that were made publicly available.

In September 2016, Mira Manager, S de RL de CV, held the issuance and placement of the first CERPI for a maximum amount of 4 billion pesos on the BMV. This CERPI is aimed at developing medium to upper class housing, commercial stores, offices and hotels.12

In October 2016, the first public offering of Fibra E investment securities in Mexico by local construction company Promotora y Operadora de Infraestructura (Pinfra), raised 11.8 billion pesos in total. The securities, issued through Fibra Vía, a financial vehicle created by Pinfra, sold at a price of 30 pesos each. Through the placement, Fibra Vía will now own 44.4 per cent of Pacsa, the company operating the Mexico City-Toluca highway, while Pinfra will hold a 53.6 per cent stake in Fibra Vía. The Mexican construction company will retain 79.4 per cent of Pacsa’s shares. Pinfra said that around 80 investors participated in the offering, including retirement fund administrators (Afores), and pension and investment funds, This was the first time in Mexico that a company issued Fibra E securities since the government introduced the tax-efficient instrument last year in order to promote energy and infrastructure projects.13

Accel Partners and QED Investors made their debut investments in Mexico. Accel participated in a US$6.7 million Series A in Mexican grocery shopping service Cornershop led by ALLVP, with participation from Jackson Square Ventures, Endeavor Catalyst, and Nordic firm Creandum. QED Investors joined Accion Frontier Inclusion Fund, KaszeK Ventures, Quona Capital, and Jaguar Ventures in a US$8 million Series A in Mexican lending platform Konfio.14

InnovaCamp Ventures launched a 125 million peso fund to invest in Mexican start-ups in the food industry over four years.15

Affiliates of ACON Latin America Opportunities Fund IV have made an investment in Controladora GMI, a manufacturer and provider of modular construction solutions in Mexico and Latin America serving the aeronautical, education, housing, retail and industrial sectors.16

Orange Investments, an investment firm focused on real estate investments in Mexico, seeks to capture up to 5 billion pesos with the issuance of its first CKD vehicle in 2017.17

Miami based private capital firm Alsis has committed to investing in the Mexican housing sector. Alsis is backed by Canadian and American firms Ontario Teacher’s Pension Plan (OTPP), the California Public Employee Retirement System (CalPERS), and private equity and venture capital firm, Northgate.18

Mexican private equity firm Walton Street México will invest 1.4 billion pesos in real estate projects in Mexico. The funds for the investment were raised from the issuance of the firm’s fourth CKD.19

In December 2106, Nexxus Capital announced that it has reached an agreement to invest in Pumping Team Holding SA de CV a holding company of concrete pumping services with operations in Mexico and Spain. This investment will be made through Nexxus Capital Private Equity Fund VI, LP and Nexxus Capital VI Trust, once certain closing conditions are met, including the approval of Mexico’s Antitrust Authority. The transaction involves the Spanish PE Fund MCH Iberian Capital Fund IV, FCR, and the shareholders of Pumping Team SLL who will be the operating partners of the company. This will be one of the first transactions that combine both Mexican and international PE Funds. Pumping Team will have nearly 550 pumping units, considering the existing operations in Spain as well as the units acquired by one of the Mexican subsidiaries of CEMEX SAB de CV.20

IGNIA, a leading venture capital fund is raising its second fund to continue investing in high growth enterprises, which targets 70 per cent of the population at the base of the socio-economic pyramid of Mexico21 and announced their investment in Abra, a bitcoin-blockchain-enabled mobile wallet and payments company based in Mountain View, California. Mexico is a key market in Abra’s international expansion efforts; the Company plans to grow rapidly in the country in partnership with IGNIA. Through this investment, IGNIA reasserts its confidence in Mexico’s growing fintech sector and reaffirms its commitment to invest in innovative solutions that foster financial inclusion.

II LEGAL FRAMEWORK FOR FUNDRAISING

The Canadian limited partnership is one of the most popular legal forms to structure PE funds with Mexican limited partners investment, as they are considered transparent structures for tax purposes. In addition, other forms of vehicles used in Mexico include the PE investment trust and FICAPs, which is a Mexican trust that is not considered an entity under Mexican law, and which has a specific set of tax rules created to incentivise PE investments. To raise funds from investors, FICAPs issue certificates that can be either publicly placed through the BMV (the most recent CKDs are FICAPs) or privately issued. FICAPs are exempt from complying with certain management and tax payment obligations. The fundamental characteristic of the FICAPs is that the trust is subject to a transparent regime for tax purposes, and thus such regime allows the investors to directly recognise the income generated through the trust (dividends, capital gains and interest payments) as if they had obtained such income from investing directly in a Mexican target entity. Another form that is used by PE funds is the SAPI, which is mainly a Mexican corporation that provides great flexibility to structure different kinds of businesses (including PE funds), and also increases the protection offered to minority shareholders and provides exit strategies.

The key legal and negotiable terms of PE funds will depend on the vehicle chosen, but will be very similar to those in other jurisdictions (e.g., the term of the fund, investment policies, management of the fund and documentation of the relationship between the manager and the fund, fees, carried interest and exits for limited partners).

One of the key issues for a Mexican PE fund is its management. In connection with CKD funds, for example, the sponsor will normally act as the manager, and will carry out the business of instructing the trustee to make the required investments in eligible projects; however, pursuant to Mexican securities law, it would also require the approval of the limited partners for relevant investments or actions, which causes the limited partners of CKDs or FIBRAs to have an active role in the management of the fund. All CKDs and FIBRAs investments are subject to certain guidelines (including bondholder meeting approval). Nevertheless, the structuring of CKDs has improved over time, and has evolved to the extent that CKDs are released from rules that previously prevented deals from taking place. In addition, we have noticed that management fees and carried-interest fees have changed over the past five years. The tendency has been for such fees to decrease (e.g., some CKDs had management fees amounting to around 2 per cent of the total amount invested during the investment period in 2009; currently, the management fees for 2015 transactions range between 1.5 and 1.75 per cent of the total amount invested during the 2014 investment period).

We have also noted that, rather than the usual passive limited partner role, certain institutional investors are seeking a more active role in traditional PE funds.

The SAPI is governed by federal law and, more specifically, by the Mexican Securities Market Law; all items not covered by the Mexican Securities Market Law are regulated by the General Law of Business Organisations. However, the SAPI is not subject to obligations applicable to public corporations or to the surveillance of the National Banking and Securities Commission. Therefore, no disclosure obligations must be met.

PE funds are reluctant to share information due to potential threats posed by competitors and other factors. However, if the PE fund is structured through a CKD, investors and fund managers must take into consideration that CKDs are publicly listed vehicles; as such, they are obliged to disclose certain information, and its issuers have the same disclosure obligations as other debt issuers according to Mexican regulations.

Disclosure obligations include the filing of quarterly and annual reports to the BMV that include updates and annual audited financial statements, as well as a duty to disclose any information necessary for investors to carry out investment decisions.

As explained above, depending on the structure of the PE investment, the method of investment solicitation at the fundraising stage may vary.

PE funds may raise capital by privately soliciting sophisticated investors in Mexico under the Mexican safe-harbour rule, which allows the private placement of securities to such investors. For public funds such as CKDs or FIBRA, solicitation is open to the general public (any kind of investor, person or entity, whether Mexican or foreign), although generally such funds target the investment of institutional investors such as the Afores, insurance companies and sophisticated investors who are private banking clients. Public funds such as CKDs and FIBRAs are also subject to certain solicitation and publicity guidelines applicable to all issuers on the BMV market.

GPs of PE funds formed as Canadian limited partnerships may be subject to certain Canadian regulations applicable to GPs.

Regarding Mexican vehicles, in structures such as SAPIs, the fiduciary duties of care and loyalty (such as conflicts of interest, disclosure and informational duties) shall be set forth contractually. Furthermore, the adoption of the Better Corporate Practices Guidelines issued by the Mexican Coordination Business Council is encouraged, and many funds have adopted such practices regarding corporate governance and fiduciary duties.

Regarding CKDs and FIBRAs, the manager of the fund is normally also the fund’s sponsor and, in line with its responsibilities to carry out the fund’s projects, it must comply with the resolutions and policies of the trust’s technical committee; such committee will set up the terms and conditions of the manager’s duties, and must reject any transactions that may involve a conflict of interest. Recently, it has become more common that managers of CKDs or FIBRAs are subject to the same fiduciary duties that the directors of Mexican public companies are subject to in accordance with Mexican securities law.

Regarding FIBRA E, it must be structured as a Mexican trust. The applicable tax rules provide that the trust must be formed following many of the requirements applicable to the FIBRAs with certain differences. The trust must have (1) up to 30 per cent of its book value represented by bonds of the federal government or shares of mutual funds who may invest only in fixed income securities, and (2) at least 70 per cent of its book value represented by investments in shares of Mexican companies. Such Mexican companies shall comply with the following: (1) the shareholders of the company (other than the trust itself) must be Mexican residents; this requirement does not exclude foreign investors in any manner, and they will be entitled to own shares of the underlying company through the trust or through a Mexican subsidiary, although depending on the amount of the investment, antitrust and foreign investment approvals may be required; (2) the corporate purpose of each company must be a Mexican-qualified energy, electricity and infrastructure asset-related activity, the management thereof or a combination of such activities, and at least 90 per cent of the annual taxable income of the FIBRA E should stem from qualified energy, electricity and infrastructure assets; and (3) the investments of the company must be in brownfield or qualified greenfield projects as only 25 per cent of the book value may be represented by new assets.

III REGULATORY DEVELOPMENTS

Except for publicly placed PE funds (such as the CKDs, FIBRAs, FIBRA E and CERPIs), there is no regulatory oversight of Mexican PE funds or their fundraising processes (other than the safe-harbour rule mentioned above).

CKDs, FIBRAs, FIBRA E and CERPIs are governed by federal securities law, and their main regulator is the Mexican Banking and Securities Commission or (CNBV). CKDs, FIBRA E, FIBRAs and CERPIs are supervised and regulated to ensure the proper operation of the financial system and to protect the interests of the general public. In consequence, issuers are subject to quarterly and annual reporting obligations, such as presentation of audited financial statements, and the registration of the fund requires the previous authorisation of the CNBV and the BMV.

Other forms of PE funds are not under any obligation or requirement to be registered in Mexico, and the sponsors or GPs do not have to be registered in any special registry in connection with their activities as fund managers.

Depending on the legal form of the PE fund, the tax rules can vary; thus, the specific tax regime applicable to the investors may also vary. Nonetheless, generally the vehicles chosen (including limited partnerships and FICAPs) are structured in a manner that allows them to be considered tax-transparent vehicles, which implies that the income realised is directly recognised by the investors.

In the case of foreign limited partnerships, a tax-transparency regime may be achieved to the extent that such partnerships are created in a country with which Mexico has a broad agreement for the exchange of information; that they do not have a legal personality of their own, separate from that of their members; and that they are tax transparent in their country of formation. If such requirements are met, the limited partnership will be treated as tax transparent for Mexican purposes, and thus the investors will be entitled to apply any benefits that may be included in any relevant double taxation treaty.

FICAPs, on the other hand, are also tax transparent, and are governed by a special set of tax rules that defines the withholding obligations applicable to the parties involved, as well as the moment at which the investors participating in FICAPs shall be liable to tax. More specifically, according to such rules the investors shall be liable to Mexican tax upon receiving a distribution from the FICAP, and the tax regime actually applicable to each investor will be contingent on the nature and country of residence of such investors (e.g., institutional, foreign or local, tax-exempt or taxable).

To qualify as such, FICAPs are subject to certain requirements under Mexican tax provisions:

  • a FICAPs shall invest at least 80 per cent of the trust assets in stock issued by Mexican target entities (not publicly listed at the time of the investment) or granted as loans to such entities;
  • b the remaining percentage that is not invested in stock issued by Mexican target entities or granted as loans to such entities shall be invested in securities issued by the federal government or in Mexican debt mutual funds;
  • c the acquired stock shall be held for at least two years; and
  • d at least 80 per cent of the income realised by the FICAP should be distributed within two months following the end of the tax year. If the FICAP does not reach such thresholds, it will not be considered as such and thus will not benefit from the specific tax rules applicable to such vehicles.

Slight changes were made to the tax regime applicable to FICAPs for 2016; in particular, it should be highlighted that the limitation for the application of the FICAP regime for a maximum of 10 years has been repealed. In the case of FIBRAs, two additional requirements were included as part of the amendments made to the income tax legislation for 2014 (and which resulted in a new Income Tax Law): in the case of lease agreements where the consideration is established as a variable amount or based on a percentage, such type of income cannot exceed 5 per cent of the aggregate income of the FIBRA unless the rental payment is established as a fixed percentage of the sales of the lessee; and trusts operating as FIBRAs must be registered with the tax authorities. In addition, certain measures were included in the applicable securities rules to limit the ability of FIBRAs to incur debt. And more recently, the possibility has been established for the FIBRA trust to repurchase its own certificates, subject to several conditions.

As for the recently enacted FIBRA E, the main features of the tax regime that has been established may be summarised as follows:

  • a Both the underlying Mexican companies in which the trust invests and the trust itself shall be treated as tax transparent, and the certificate holders will directly recognise the tax result of the FIBRA E as computed by the trustee under the specific rules (no monthly or annual income tax payments are required at the trust or underlying company levels).
  • b In computing the tax result of the trust, the trustee shall consider the tax profits generated by the underlying companies (but not the tax losses, which may only be carried forward by the entity that generated them) and a deductible deferred expense, equal to the gain generated by the seller of the shares acquired by the FIBRA E trust as per below.
  • c The persons selling shares to a FIBRA E will be required to recognise the gain derived from the sale of the assets owned by the company whose shares were sold (instead of recognising a capital gain on the actual sale of shares).
  • d The trust will be required to distribute on a yearly basis at least an amount equal to 95 per cent of its annual tax result, using the proceeds distributed by the underlying companies.
  • e The aforementioned distributions will not be considered dividends for tax purposes and thus the 10 per cent dividend tax will not apply.
  • f Certain specific rules were enacted in order to allow the spin-off or otherwise segregate qualifying assets to special purpose vehicles in a tax-efficient manner, provided that at least a certain number of the shares in the resulting vehicle are subsequently sold to a FIBRA E within six months.
  • g Mexican-resident individuals and non-resident investors will be exempt from withholding tax on the sale of the certificates issued by the FIBRA E, provided that the sale takes place through an authorised exchange.

IV OUTLOOK

The private equity industry in Mexico has been re-energised by government reforms and policies, a stable macroeconomic situation, a stable population growth rate, real income increase and an active entrepreneurial ecosystem. New and different investment vehicles are drawing in Mexican investors, and foreign LPs are increasing their participation. Further, innovative instruments such as the FIBRA E promise to power private investments.

While the forecasts are moderately strong, we expect contract and investment opportunities to be abundant as government policies support a shift towards a larger role for private investment in the Mexican infrastructure and energy industries. If conditions remain the same and the growth rate remains at levels we have seen, the PE industry would reach US$80 billion by the end of 2020 according to AMEXCAP.

We predict that the regulations applicable to publicly issued PE funds will continue to be improved, and that the regulations regarding investment restrictions applicable to Mexican pension funds must necessarily evolve toward the type of regulation seen in other, more evolved countries in order to allow the pension funds to conduct private transactions and investments in funds or projects directly (and not only through publicly issued securities such as CKDs, FIBRAs, FIBRA E and CERPIs).


Footnotes

1 Hans P Goebel C, Héctor Arangua L and Adalberto Valadez are partners at Nader, Hayaux y Goebel. They would like to thank and acknowledge Ms Lorenza Molina, associate at the firm, for her help with the preparation of this article.

2 AMEXCAP, ‘Overview of the Private Equity Industry in Mexico – June 2016’.

3 FINANCIER: www.financierworldwide.com.

4 PRO México: www.promexico.gob.mx/en/mx/tratados-comerciales-inversion.

5 AMEXCAP, ‘Overview of the Private Equity Industry in Mexico’, June 2016.

6 Idem.

7 Idem.

8 Rosenfel E, ‘Mexico to receive major economic jolt’, CNBC.com, 2014.

9 PRO México: www.promexico.gob.mx/es/mx/queretaro.

10 ‘Private Equity in Mexico: Primed for significant growth’; Antonio Martinez Leal and Pino del Sesto, Bain and Company.

11 AMEXCAP, ‘Overview of the Venture Capital Industry in Mexico’ – October 2016.

12 Nader, Hayaux y Goebel advised Barclays, acting as placement agent, on this offering.

13 Bolsa Mexicana de Valores: www.bmv.com.mx.

14 AMEXCAP, ‘Transactional News’.

15 LAVCA, lavca.org.

16 Idem.

17 Idem.

19 Idem.

20 Nexxus Capital: www.nexxuscapital.com.

21 Idem.