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PRIVATE EQUITY FUNDS

GROWTH, CONFIDENCE AND OPPORTUNITIES TO INVEST

POTENTIAL GROWTH OF THE PRIVATE EQUITY INDUSTRY

In 2014 Colombia maintained its 4th place position among 12 Latin American and Caribbean nations, in the ranking developed by the Latin American Private Equity & Venture Capital Association (LAVCA), which measures how favorable conditions are for the development of the private equity industry.

According to Bancoldex [Banco de Comercio Exterior (Foreign Trade Bank)], there are 40 closed funds with committed capital above USD 4.3 billion, and there are other initiatives in process for getting capital contributions of USD 1.388 millions.

Sectors like energy, tourism, health, forestry, agro-industry and ICTs, among others, offer investment opportunities.

SOURCE: BANCOLDEX – PRIVATE EQUITY FUNDS DEPARTMENT.

The development of the private equity industry in Colombia has allowed it to move up in the LAVCA ranking: it was in 7th place in 2006, and it has held 4th place since 2010.

The committed capital in these funds recorded an annual compound growth of 83% between 2005 and 2013, and is seen as a very important financing alternative for Colombian business owners.

In 2012 Colombia accounted for 1% of the total resources collected in private equity and venture capital funds in Latin America, which in turn accounts for 5% at a global level.

28% of committed capital is in multi-sectoral funds, 27% in real estate funds, 19% in infrastructure funds and 8% in funds for the oil and gas sector.

COMMITTED CAPITAL IN USD MILLIONS, 2005-2013.

2006 2007

34

20082005 2009 2010 2011 2012 2013

34

1.378

34

594

1.905

2.9543.246

3.872

4.324

FAVORABLE ECONOMIC CONDITIONS

Inflation, controlled and under its goal

GDP growth, 2013 Internal investment rate as a percentage

of GDP

Macroeconomic stability and dynamic long-term economic performance. The Colombian economy grew by 4.7% in 2013 and is expected to grow by 5% in 2014.

Inflation is controlled and under its goal. In 2013 inflation closed at 1.94%.

Reduction in the unemployment rate. The average unemployment rate in 2013 was 9.6%.

Estimated population of 47 million in 2013 and a growing middle class that in 2012 represented 25% of the total population.

Per capita GDP above USD $10,000, almost twice what was recorded for the year 2000.

In December 2013, 22.5 million people (71.5% of the adult population) had at least one financial product, and credit card users reached 6.6 million.

Internal investment rate close to 30% (as a percentage of GDP).

1,9% 4,7% 30%

According to LAVCA, one of Colombia’s strengths is its attractive regulatory framework for the creation and management of private equity funds.

Since 2007, Colombia’s regulations have generated interest among investment funds and have facilitated and boosted the private equity industry. Decree 1242 of 2013 replaces the previous regulations in regard to the administration and management of investment funds.

Colombia has achieved advances in implementing reforms for improving the business environment. It currently is ranked 43rd among 189 economies, based on Doing Business 2014 published by the World Bank.

The country is also internationally recognized for the protection it offers investors, ranked 6th in the world and 1st among Latin American countries, according to Doing Business.

In 2012 Bancoldex and the Inter-American Development Bank’s Multilateral Investment Fund (MIF) led the creation of the Asociación Colombiana de Fondos de Capital [Colombian Association of Private Equity Funds] (COLCAPITAL) to strengthen and promote development of the private equity industry.

In 2009 the Bancoldex Capital program was created with the aim of promoting the private equity industry in Colombia.

CONSOLIDATED REGULATORYAND INSTITUTIONAL FRAMEWORK

There is an excellent opportunity to obtain local capital resources from institutional investors such as pension funds and insurance companies, which have had an excellent performance in recent years.

Currently there are 4 private pension funds (Protección, Porvenir, Colfondos and Old Mutual) and around 30 insurance companies with the capacity to invest in private equity funds.

In 2013 the value of the pension funds amounted to USD 80.994 millions. The value of the funds recorded a compound annual growth of 23% between 2005 and 2012.

In 2007 changes in the regulations allowed pension funds to invest in private equity funds. In 2011, with the implementation of the multi-fund system, smaller pension funds can invest up to 5% in private equity funds and up to 7% if it is a high-risk fund.

Other important institutional investors are development banks, financial corporations and multilateral investment funds.

The integration of the stock exchanges of Colombia, Chile and Peru has created an excellent exit strategy for private equity funds, with greater diversification for investors and better access to capital markets. Greater market consolidation is expected to be achieved with the entrance of the Mexican Stock Exchange, which is making progress in making the necessary changes to allow its incorporation.

Currently, the MILA [Mercado Integrado Latinoamericano (Latin American Integrated Market)] is the top market in Latin America by number of companies listed, second in market capitalization and third for volume of trade.

AVAILABILITY OF LOCAL CAPITAL AND ACCESS TO CAPITAL MARKETS

MULTIPLE INVESTMENT OPPORTUNITIES

Colombia has a diversified economy with investment possibilities in various sectors. The services, industry, mining, retail and construction sectors stand out in the country.

Growing direct foreign investment flows confirm that this is a good time for the country to attract investment. In 2013 investment cash flows amounted to USD 16.199 millions, which represented a growth of 8.2% over the previous year. 52% was aimed at sectors other than oil and mining.

In Colombia there are investment opportunities in small and medium companies in stages of expansion and consolidation, which are mainly concentrated in the retail, services and industry sectors.

Source: DANE.

According to the Asociación Nacional de Instituciones Financieras [National Association of Financial Institutions] (ANIF), there is potential for investment in these companies due to the availability of labor and contribution towards growth. Along with micro-enterprises, they account for 81% of the workforce and provide an average of 40% of the GDP.

*Calculations made on added value.

SECTORAL DISTRIBUTION OF GDP 2013GDP: USD 378.125 BILLION*3,7%

FINANCIAL AND BUSINESS SERVICES

SOCIAL AND PERSONAL SERVICES

RETAIL, RESTAURANTS AND HOTELS

INDUSTRY

MINING

CONSTRUCTION

TRANSPORTATION AND COMMUNICATIONS

AGRICULTURE AND LIVESTOCK

ELECTRICITY, GAS AND WATER

LARGE COMPANIES HAVE CHOSENCOLOMBIA AS A PLACE TO INVEST

The Abraaj Capital Group’s investment platform for small and medium-sized companies. The portfolio includes the funds Aureos Colombia FCP, Aureos Latin America Fund I LP and Aureos Latin America Fund II LP, which seek long-term capital appreciation via investment in companies in different sectors.

AUREOS CAPITAL:

Company dedicated to the professional management of real assets and private equity funds. Brookfield’s Colombia Private Equity and Infrastructure Fund is focused on making infrastructure investments in the energy, transportation and public services sectors.

BROOKFIELD:

Private equity fund focused on the hotel asset category. The portfolio includes the Brilla Colombia Private Equity Fund, which has resources originating from pension funds and local institutions. The fund’s objective is to invest in luxury hotel assets on the Colombian Caribbean Sea.

BRILLA GROUP:

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