Private equity developments encourage dynamism in Colombia's capital markets


A number of factors bode well for Colombia’s capital markets. The country has well-established sovereign fixed-income and corporate debt markets, while recent efforts to continue integrating new technology are expected to improve investor participation. Likewise, the acquisition of the Central Securities Depository (Depósito Centralizado de Valores, Deceval), a trading platform, by the Colombia Stock Exchange (Bolsa de Valores de Colombia, bvc) in December 2017 has substantially reduced market operating costs. Since the adoption of a derivatives market in 2008, the segment has become increasingly dynamic as a key component of firms’ hedging strategies, especially during periods of market volatility. On a larger scale, as regional markets, including the Latin American Integrated Market (Mercado Integrado Latinoamericano, MILA) integrate further, they will likely become progressively more attractive to global financiers. However, given the low number of institutional investors, initial public offerings (IPOs) and secondary offerings, the equity market has remained somewhat stagnant in recent years, though the government has vowed to promote its development through a newly launched Capital Markets Mission.

State of the Market

After a number of slower years, the outlook for capital markets in 2019 is positive, buoyed by a 19.75% growth in value of Colombian firms. In the first quarter of 2019 market capitalisation on the bvc reached $128bn, with nearly all listed shares closing at the same or a better position compared to the end of 2018, according to Colombian brokerage house Casa de Bolsa. That year the exchange lost nearly a quarter of its value, declining from $134bn to $105bn.

Although the private equity market has cooled in recent years as the country weathered the economic slowdown of 2016 and 2017, it has become an increasingly important fixture in the local capital markets scene, particularly for infrastructure and real estate development financing. The country has attracted three major debt funds to participate in its Fourth Generation (4G) road infrastructure programme as well as a number of real estate investment trusts.

Sovereign Debt

Medium- and long-term government-issued tenders are known locally as TES bonds, which are denominated in pesos or real value units (unidad de valor real, UVRs). With $94.9bn outstanding as of April 2019, it is one of the largest such markets in Latin America and by far the most developed segment in Colombia. International investors have increased their uptake of TES bonds, comprising 25.4% of the overall market as of April 2019, up from 3% in 2014. Despite market volatility during 2018, foreign investors were the second-largest acquirers of TES bonds, with their net position growing by COP9.6trn ($3.3bn) to reach COP77.4trn ($26.5bn). They also make up the largest group of buyers of peso-denominated TES bonds, holding a little over 40% of the total. A major catalysts to increased global participation has been the progressive reduction of tax rates charged on foreign owners of TES bonds, from 33% to 14% in 2012, and then again from 14% to 5% in 2018. Pension and severance funds maintain their position as the largest buyers of TES bonds, holding 27.9% of the total in 2018, according to Casa de Bolsa. When looking at the last five years, the participation of commercial banks and public fiduciaries has been dropping, though insurance companies maintain stable participation at around 5%. Formal financial institutions hold over 50% of all TES bonds denominated in UVR. TES bonds experienced a depreciation in recent months, with those set to expire in 2024 dropping from 6.2% in November 2018 to 5.5% in June 2019.


In March 2019 the Ministry of Finance (MoF) launched internal debt-management operation within the framework described in the Medium-Term Debt Management Strategy for 2018-22. The restructuring was launched to alleviate COP6bn ($2.1m) in government payments due in 2019 as a number of bonds were set to mature. The operation included the swap of Class-B, UVR-denominated TES bonds with new issuances set to mature in 2022. The same was done for peso-denominated TES bonds, with new maturity dates set at 2025, 2028 and 2034.

Pointing to continued investor confidence in Colombia’s long-term performance, in January 2019 the country issued COP750bn ($256.5m) in TES bonds with the longest maturity to date, set at 2034. The operation was almost two times oversubscribed, with demand reaching COP1.5trn ($513m). This comes amid two credit ratings agencies diverging on their assessments of Colombia’s public debt. Fitch affirmed Colombia’s longterm foreign currency issuer default rating at “BBB” and revised its outlook from stable to negative in May 2019, primarily reflecting risks to fiscal consolidation and a weakening of credibility following 2018 reforms. However, Moody’s lifted its outlook from negative to stable in May 2019 citing recovering economic activity and government measures to stabilise debt.

Corporate Debt

Colombia’s market for corporate debt is far smaller. In 2018 corporate debt issuance dropped by 22% to COP9.7bn ($3.3m). Around 60% of these bonds were indexed to the consumer price index, followed by 21% at a fixed rate and 14% indexed to the banking reference indicator. Issuance by banks and financial conglomerates, which usually drives the segment, dropped by 37% to COP4.4bn ($1.5m), while debt issued by the real sector grew by 15% to COP4.6bn ($1.57m). The uptick in the latter was led primarily by Colombian oil and gas company Terpel and hydroelectric power generator Isagen, which each issued COP1.1bn ($376.2m). According to Casa de Bolsa, when taking into account corporate issuances since 2008, 2019 and 2020 will have the highest number of corporate bonds reaching maturity, with an estimated COP6.8bn ($2.3m) and COP6.4bn ($2.2m) paid out, respectively.

The year 2017 marked a milestone for the issuance of green bonds, including two by the national business development bank, Bancóldex, and local bank Davivienda for COP200bn ($68.4m) and COP433bn ($148.1m), respectively. The following year saw two more issued by natural gas firm Celsia for COP420bn ($143.6m) and financial services company Bancolombia for COP300bn ($102.6m). The Bancóldex and Bancolombia issuances were carried out through the capital markets and were oversubscribed by 115.2%. Also from Bancóldex, COP400bn ($136.8m) in orange bonds were issued in November 2018 and were 2.9 times oversubscribed. Orange bonds are dedicated to providing capital to start-ups that demonstrate high growth potential in creative industries. The bvc is launching a separate board for the issuance of debt by small and medium-sized enterprises (SMEs). While details of the project remain unclear, initial plans include new financing mechanisms for SMEs with less stringent requirements than those for larger established companies.

Public Equity

Colombia’s equity market is relatively narrow, with quarterly traded volumes remaining stable at COP10trn ($3.4bn) in the fourth quarter of 2018 compared to the same period in 2017. Of the 67 shares listed on the bvc, around 25-30 are actively traded, with primary petroleum company Ecopetrol being the most traded stock. The most widely watched index is Colcap, currently made up of 24 ordinary and preference shares from 20 issuers, and reconstituted annually on the basis of traded volumes, percentage free float and daily trading. Colombia’s stock exchange remains one of the least developed in the region, with lower average trading volumes than Brazil, Mexico and Chile, and fewer listed companies than Brazil, Mexico, Chile, Peru and Argentina. This prompted the government to launch the Capital Markets Mission in October 2018, with the aim of making an action plan to bolster the market. Results of the plan are expected to be released in mid-2019 laying out a suggested course of action.

Listing Abroad

The country’s largest companies have traditionally preferred to list their shares in foreign markets, with a large share of business going to the US through American depositary receipts (ADRs). As of mid-2019, 12 Colombian companies traded under the ADR model in the US, with glass and window manufacturer Tecnoglass being the only Colombian company to be listed on the NASDAQ Stock Market. In 2018 ADRs from both Ecopetrol and Tecnoglass showed significant improvements, increasing their values by 3.18% and 8.32%, respectively. However, valuations of holding company Grupo Aval and local airline Avianca dropped by 50.37% and 31.87%, respectively.


Following the launch of the standardised derivatives market by the bvc in 2008, the range of products available on the Colombian market has gradually expanded, and trading volumes have picked up substantially. Using derivatives has become a key hedging strategy for Colombian firms, particularly during periods of market volatility and macroeconomic uncertainty. Between 2010 and 2018 average daily trading volumes on the derivatives market grew six-fold, to reach COP615.3bn ($210.4m), with foreign exchange and interest rate derivatives accounting for the bulk of operations. Prevailing macroeconomic trends have tended to have a big influence on investors’ use of derivatives, and the recent depreciation of the Colombian peso spurred a noticeable increase in trading in foreign exchange in 2018 and the first quarter of 2019.


Investment in financial technology ( fintech) is gaining ground as a way to increase participation and reduce costs. The bvc’s acquisition of Deceval is leading to the development of new products and synergies across the two platforms. At the same time, the bvc’s increased participation in the Cámara de Riesgo Central de Contraparte de Colombia in 2016, has enabled the exchange to provide clearing and settlement services through their platform. After Fitch Ratings and Standard & Poor’s revised the bvc’s credit rating to “AAA” in January 2019, the capital market operator is seeking to consolidate its gains by investing COP70bn ($23.9m) in fintech in the five years to 2024. According to Latin American fintech accelerator Finnovista, the number of start-ups dedicated to trading and capital markets increased from four to eight in 2018.


Under Colombian law, management firms, including investment fund administrators, fiduciaries and stock brokers, are charged with identifying, administrating and managing the risks associated with funds. Fiduciaries accounted for COP529bn ($180.9m), or 30.8%, of banking sector assets in 2018. With COP291.5bn ($99.7m) under management, fiduciaries comprised 34.7% of the value of investment portfolios, making them the largest institutional investor operating in Colombia. Traditionally, fiduciaries have played a pivotal role in the management of social security, infrastructure and real estate funds. More recently fiduciaries have turned their attention to private equity and venture capital (VC), increasing their market share from 51.9% in 2017 to 63.5% as of June 2018.

Private Equity

Private equity has become an increasingly important fixture for infrastructure and real estate financing. Since the industry was created in 2005, 125 private equity funds have been started, of which 111 were active as of mid-2018. Of these, 14 have finalised their investment and disinvestment cycles. According to the Colombian Association of Private Equity Funds (Asociación Colombiano de Fondos de Capital Privado, ColCapital), capital commitments as of June 2018 had reached $16.6bn, with $11.01bn invested across 701 assets. Infrastructure accounts for the highest share, at 51.1% of total investments across 44 projects, followed by real estate at 29% across 429 assets, growth acquisitions (15.3%, 78 assets), natural resources (3.8%) and VC (0.8%). As of June 2018 ColCapital reported that available capital for investment had reached $5.56bn with 25 funds in the fundraising stage. Infrastructure and real estate accounted for 69.1% of the total. According to the “2017/18 Latin American Private Equity and VC Association (LAVCA) Scorecard”, which analyses the regulatory environment, and policy and capital market updates in the region, Colombia ranked fourth out of 11 Latin American and Caribbean countries. While its position remained unchanged from the “2016/17 LAVCA Scorecard”, improvements were noted by the association across a number of indicators, including in regulatory processes, bankruptcy procedures, shareholder rights and migration to international accounting standards.

The most recent data from the “2019 LAVCA Industry Data & Analysis” summary showed that in 2018, $4bn was invested in 20 large-cap ($100m and above) transactions in the region, while $2.8bn was invested in 94 mid-cap ($10m-100m) deals. Colombia attracted 5.2% of the these projects, below regional counterparts Chile (9.3%), Mexico (22.5%) and Brazil (51.5%). However, in terms of value, Colombia attracted 9.4% of dollars invested, two points higher than Chile (7.4%). Elements that are expected to drive growth in Colombia’s private equity industry in the short to medium term include the country’s recent accession to the OECD, regained momentum in 4G infrastructure projects (see Transport & Logistics chapter) and the convergence of the country’s inflation rate towards the goal set by the government (see Economy chapter). Given muted dynamism on the bvc and the small number of institutional investors, the majority of private equity exits were reported through secondary buyouts. In 2018 a total of 176 private equity exits were reported across various sectors, with natural resources (82) in the lead, followed by real estate (35), VC (31), acquisition/growth (19), infrastructure (8) and impact (1). As the average lifespan of a private equity fund in Colombia is 13 years, the five years to 2024 are expected to see a higher number of fund managers seeking to exit investments.

Fund Managers

The creation of fund managers in Latin America has decelerated noticeably since 2013, in line with the strong drop in commodity prices and volatility in exchange rates. In Colombia there were 77 consolidated wealth managers as of June 2019; however, the number of new enterprises opening has stalled, with one establishing operations in 2018, down from four the previous year. Institutional investors, such as pension funds, have increasingly preferred to invest in the international wealth management industry as it is perceived as a safer gamble. This flight to quality follows reforms of the investment regime in 2018 that saw the unification of investment limits between local and international funds. Another challenge faced by wealth managers stems from the costly regulatory framework and fiscal regime, which weighs on financial closures and adversely affects competitiveness. Of the 111 funds active in June 2018, 50.5% were under Colombian jurisdiction, down from 56.8% in June 2017. Advances in implementing the Funds Passport initiative for the four Pacific Alliance members states are also taking place. The passport system would allow funds domiciled in one member country to be sold in the other without additional permits, although work is still needed on some fronts, such as in regulatory standardisation to ensure a minimum shared benchmarks.


The Colombian pension fund market is dominated by four large pension funds: Proteccion, Porvenir, Colfondos and pan-African insurance company Old Mutual. Together they accounted for 41.5% of total capital committed to the sector in 2018. These funds are highly liquid and seek to invest in international, large-ticket items. “The 2018 investment regime unification has allowed institutional investors to direct their capital towards larger, international funds with proven track records, effectively hardening the sector’s ability to finance itself locally,” María Isabella Muñoz, CEO of ColCapital, told OBG. “Revisiting this policy or convincing these entities to invest at home is paramount to the continuous development of the industry.” Meanwhile, corporate investors, which have gained a larger share in recent years, comprised 20.6% of committed capital, followed by insurance companies (5.9%), banks (5.1%) and other entities, including high-net-worth individuals.

Impact Investments

In Latin America, dedicated impact funds managed alongside traditional private equity and VC structures have become an increasingly attractive option. Impact capital deployed by Latin American investors doubled from $95m in FY 2014/15 to $193m in FY 2016/17, according to LAVCA. In 2018 of the 21 impact investment funds operating in Latin America, 13 were located in Colombia. Almost three-quarters of impact investors actively co-invest. While the majority of financing goes to private equity and VC funds, a number of firms have begun backing tech start-ups focused on addressing social issues such as health care, the environment and financial inclusion. In May 2018 FCP Innovación, the corporate venture fund of Colombian utility company Empresas Públicas de Medellín, together with Chile’s Ameris Capital, led an investment round in TriCiclos, a Chilean recycling and sustainability firm. This followed April 2017 investment by global philanthropic investment firm Omidyar Network in early stage property technology company Suyo, a public benefit corporation that leverages modern technology to formalise property rights for low-income families. In addition, in 2016 the US’ Gray Matters Capital invested in early-stage education technology start-up Aulas AMiGAS, which develops and offers affordable technologies to schools to better engage students.

Regulatory Change

In March 2019 a new measure aimed at the General Pension System of Colombia entered into force. In 2018 the MoF modified the default selection rules for pension funds under the multi-fund structure. With the implementation of Decree No. 959 of 2018, members who have not directly chosen a multi-fund for their money will automatically be directed towards funds with moderate to high risk, depending on their age and work status. The measure seeks to promote investment in funds that could potentially generate higher profits. The move could also boost liquidity on the bvc at times of lower investor confidence. Stakeholders predict an increase in the amount of capital directed to these activities, with Colombia brokerage Alianza de Valores expecting investment in local stocks will increase by 8.8%.

Collaborative Financing

To promote the flow of resources directed at SMEs and fintech start-ups, in 2018 the government issued Decree No. 1357 of 2018, which regulates the activity of crowdfunding. New changes permit the financing of up to COP7.8bn ($2.7m) via the capital markets to be managed through the stock exchange, administrators of security exchanges or specialised institutions regulated by the Financial Superintendency of Colombia. While the new regulation is geared towards supporting smaller, innovative firms, it may not be having its intended effect. According to Finnovista, the number of fintech start-ups involved in crowdfunding dropped in 2018, from 11 to seven companies, signalling that the new requirements may have even negatively impacted existing start-ups.


Despite the slow evolution of equities trading, Colombia’s capital markets appear to be moving in the right direction with regard to corporate debt, and the expansion of derivatives, VC and private equity markets. Moreover, regulators continue to engage closely with their counterparts in Chile, Peru and Mexico to foment the further development of MILA, meaning the regional market will likely continue to gain prominence. Likewise, advancements made in the Funds Passport initiative across the Pacific Alliance are expected to be a game-changer for the private equity and VC industry, even as some regulatory challenges continue to persist.

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The Report: Colombia 2019

Financial Services chapter from The Report: Colombia 2019

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