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Global shocks to delay part of Portland Fund III equity raise

Global shocks will make the raising of US$350 million in seed capital for Portland Caribbean Fund III more challenging this year.

Consequently, the fund managers will extend the offer to new investors until 2024, according to Robert Almeida, the managing partner for Portland Private Equity.

Fund III aims to invest in fast-growing private Caribbean companies, with a bias towards firms that benefit the wider society.

“We would really like to raise the US$350 million, but the conditions are tougher,” Almeida said in response to Financial Gleaner queries.

Portland Private Equity expects to finish its initial round of funding by late summer, which would pool funds mainly from existing investors. From this round, Almeida expects to raise about US$200 million for Fund III.

Then, in early 2024, the fund managers hope to have a second round to woo new pools of investors to the fund, provided market conditions improve, Almeida said at an investor briefing for a smaller feeder fund, Portland JSX Limited, which is listed on the Jamaica Stock Exchange.

Portland JSX is also managed by Portland Private Equity and is a co-investor in Caribbean Fund II’s portfolio companies.

“The approach would be to try to get to a first closing now, and then, fingers crossed, would be that we start a bit of recovery towards the end of 2022, and that would enable us to go after those other pools of capital in a better market environment,” he said.

“Yeah, maybe in early 2024 we will get a final closing,” he added.

Global markets have been weathering two big shocks in the past three years – the coronavirus pandemic that emerged in early 2020 and then the Russian war against Ukraine that began in February 2022, both of which have led to the loss of lives and livelihoods.

The actions taken by governments to shore up their economies and price volatility in commodities markets led to spikes in inflation, central banks wielding interest rates as a tool to cool inflation, and more expensive borrowing costs or debt that resulted from the spike in interest rates.

But central bank actions also incentivised savings as it made risk-free government instruments more attractive, while contrastingly made the capital markets riskier. Asset prices on bonds and stocks plummeted to reflect these changes. And, initial public offerings dropped in scale and frequency.

The rapid rise in interest rates also contributed to a few large bank crashes, including one on Monday. This, in turn, reduced the overall willingness of the banking sector to lend.

Its within that context that Portland Private Equity is trying to gin up interest in its new fund.

“We would like to broaden our investor base and attract other pools of capital globally that currently do not invest in the Caribbean,” said Almeida.

But: “Current conditions make it even harder for those pools of capital to even think about the Caribbean. They are pulling back from emerging markets and not increasing,” he said.

One of Fund III’s institutional partners is the European Investment Bank, but the reduced global capital flows could impact the Fund’s attractiveness to other Europe-based capitalists.

“And that’s the difference between US$200 million and US$350 million,” said Almeida. “It is getting the people who do not typically invest in the region.”

Portland Caribbean Fund III would become one of the largest funds in the region operated by Portland Private Equity, a firm controlled by Jamaican-Canadian businessman and investor Michael Lee-Chin.

Fund III was initially expected to become operational by May 2023, according to previous discussions with Almeida.

Collectively, Portland Private Equity has already pumped capital of US$405 million into regional investments through Caribbean Fund I and II.

The value of the Caribbean Fund II recently stood just below US$250 million, inclusive of the cash realised from exiting two of its 10 equity stakes in private companies. Fund II had an initial US$180 million invested.

Caribbean Fund I previously poured US$225 million into investments such as Advantage General Insurance Company; telecommunication services providers Columbus International; construction company Moya; the beachfront development Las Olas; energy provider InterEnergy Holdings; and a soya bean company called World Food.

Fund II is due to wrap up in 2024 but is considering an extension for another year, to allow sufficient time to exit its remaining investments in private companies. It’s another example of how market conditions are affecting capital flows.

For example, Fund II’s plans to realise some or all of its investment in the online grocery chain Merqueo are on hold.

Merqueo planned to list on the US Nasdaq exchange in New York in January but that was pushed back to May. On Wednesday, Almeida told investors that the listing was now uncertain but options are being explored.

“The problem is that we have had the unexpected bank failures in March and now the investment bank underwriters and advisers are indicating that there are much more challenges. And their confidence to complete a micro-cap IPO has gone down,” he said. “So Merqueo is currently exploring several avenues but the situation is highly uncertain. The company and the fund continue to monitor the situation,” he added.

Fund II has exited its investments in InterEnergy and Panama Wind. That leaves eight companies in its portfolio, namely Productive Business Solutions Limited; Interlinc Group; Diverze Assets Inc/Chukka Holdings; Portland Telecom LP, which holds shares of Liberty Latin America; financial services firm Clarien Group Limited; Outsourcing Management Limited, which trades as itel; restaurant and food service operator Grupo IGA; and Merqueo.

Although Portland JSX generally co-invests alongside Portland Caribbean Fund II, it has done two stand-alone transactions, including a second bite of Merqueo last year and a preference share transaction with Outsourcing Management in 2021.

As for the seeding of Caribbean Fund III: “We are hoping in summer – June or July – but it might enter the third quarter for the closing of Fund III,” Almeida said.

Fund II will likely overlap with Fund III until its other investments are sold.

Portland JSX will continue activities as a going concern while moving its co-investment arrangement from Fund II to Fund III.

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