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This post is the third in an FT Alphaville series in which we speak to specialist private equity investors in emerging markets. [Part 1: CDC] [Part 2: Aureos]

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There are very few no-go areas of the world for Actis, the emerging markets private equity investor spun out of CDC in 2004. “We don’t arrive at the tipping point where it becomes attractive to everyone,” says Paul Fletcher, the senior managing partner of Actis, which has $3.3bn under management in funds targeted on Africa, India, China and south-east Asia.

“A country would have to very long term systemic problems for us to avoid it on political grounds,” he adds.

Actis will shortly launch a Latin America fund, its first for several years, with a target of $250m and a new team based in São Paolo. The group’s decision to head back into the Latin American markets comes as the region enjoys a resurgence of interest from private equity investors.

“As a firm, we have not made any new investments in Latin America for several years,” says Fletcher, adding that in part that was a function of the firm’s own strategic decision to focus its attentions elsewhere. “Now we’ve come back…and said that Brazil and Mexico represent attractive opportunities, where they’ve not done for a decade or more.”

According to the Emerging Markets Private Equity Association, private equity investing in Latin America came to a near standstill between 2001 and 2003, when funds raised just $1.4bn in the region. In 2004, funds generated a mere $96m in proceeds through exits.

But in the first half of last year, alongside improving macroeconomic performance, a bull run in commodities and the agreement of free trade pacts in the region, private equity investment increased to $1.54bn, from $1.07bn in the whole of 2005. Preliminary figures for 2006 suggest fundraising more than doubled to $2.6bn, although $2.1bn of that was for funds focused just on Brazil.

“Latin America had a deep tradition of private equity investment that has gone into abeyance over the past five years or so,” as Fletcher puts it. The fallout from the end of the tech boom, and Argentina’s default in 2001, left funds unable to recoup their investments and protracted economic instability and lack of investor interest prompted investors to pass over the region in recent years.

The US funds that had ventured southwards beat a hasty retreat but may now be lured back, under pressure to deploy their ever-greater pots of capital. One reported rumour is that Advent, the US private equity group, is planning a $1bn Latin American buyout fund.

But possible default by Ecuador, which last week surprised markets by making a $135m bond payment on time, and the threats by leftwing president Rafael Correa to restructure Ecuador’s $10bn debt, show that there remain flashpoints that could derail the region’s progress. The fear is that Ecuador, with a relatively low debt-to-GDP ratio of just over 30 per cent, could set a dangerous example by being the first government to default on its debt despite having the ability to pay.

But Actis believes that some markets within Latin America are now sufficiently robust to withstand spillover effects from a neighbour in crisis. Mike Till, the managing partner at Actis responsible for its operation in Latin America, says, “Today there is far less correlation between volatility in one emerging market and another. In the past in Latin America there has been a domino effect - if one market entered into a crisis, sentiment towards other markets in the region would also change. We believe this is no longer the case, it is highly unlikely that the situation in Ecuador will have an effect on Brazil and Mexico, given the relative size of these markets compared to Ecuador and the fact that Mexico has already achieved investment grade and Brazil is well on its way to achieving it.”

As part of its own fund raising this year, Actis wants to increase its average investment size, of about $35m, and funds under management “quite significantly,” says Fletcher. The aim is to “get …up to the point where we can write $200m equity cheques ourselves.”

Indonesia, south-east Asia’s largest economy, is another region he highlights as being of renewed interest for Actis. “We’re increasingly enthusiastic,” he says. “There were reservations on our part on governance and environment but we’ve become increasingly comfortable there. [There’s] the underlying growth trajectory for the country and many management teams that are eminently back-able.”

Management and governance are the two things he highlights as being of primary concern when investing. “Regime change in many countries is not closely correlated with the ability to make good returns. If you’ve got those two things in place, and got a decent underlying business in a growing economy, you can manage within an environment that is changing politically, or that has difficulties in the regulatory framework. Absent those two things, you can find yourself in real difficulties.”