Puerto Rico’s Private Equity Sector Gains Momentum

But leaders warn talent shortages, rigid labor laws could stall progress

Puerto Rico’s private equity sector is experiencing its most dynamic period in decades, propelled by a favorable legal framework, a strong pool of Act 60 investment entities, and a growing class of managers running sophisticated global strategies from the Island.

But industry leaders caution that the sector’s long‑term viability hinges on addressing deep structural challenges—particularly around talent, labor laws and the limitations of a small domestic market.

Those themes dominated a recent panel discussion featuring Cyril Meduña of Advent Morro, Ignacio Canto, president & portfolio manager at X-Square Capital, José Stella of Ashford Venture Partners, and moderator Carlos Penzini, founder & managing partner of VRM Penzini Capital. Their conversation, combined with separate remarks from former DDEC incentives chief & current Formentus CEO Carlos Fontán, offers a comprehensive view of both the promise and the friction points shaping the private equity sector.

Much of the optimism stems from Puerto Rico’s legal and regulatory environment, which panelists described as one of the Island’s most powerful competitive advantages. Canto, whose firm operates global investment and reinsurance structures from San Juan, said the Island’s framework offers benefits that simply do not exist elsewhere in the United States. “Structuring publicly traded funds from Puerto Rico allows for the compounding of capital gains within the structure,” he said. “They don’t have to be distributed for tax purposes to investors. When you start doing the math net of tax, it compounds extraordinarily.”

He went further, arguing that Puerto Rico’s combination of international insurance entities, international finance entities, and tax‑exempt local funds creates a platform that is unmatched globally. “Connecting the three of them and delivering a coherent strategy to lever up all the capacities within the three buckets—it’s incredible,” he said. “And that’s unique in the world.”

Meduña, who has raised more than $200 million from Puerto Rican investors over several decades, emphasized that local capital still sees value in betting on the Island’s growth. “We invest primarily in companies in Puerto Rico,” he said, noting that his firm has repeatedly succeeded by identifying business models that worked in the mainland U.S. and adapting them locally. “We weren’t buying companies. We were getting very small companies or looking for ideas that had worked in the States… and implementing that in Puerto Rico,” he noted.

Penzini echoed that sentiment, saying his firm continues to see strong appetite among Puerto Rican investors for local opportunities. “If you want to bet on Puerto Rico, on opportunities that have significant growth even compared to the U.S., the appetite we’ve received from local investors has been significant,” he said. “Everybody knows the model. Everybody has read the news of how it works.”

In a separate interview, Penzini described a private equity industry that has attracted major U.S. players and produced large local funds. He dismissed the idea that Act 60’s requirements—such as investing 60% of capital in Puerto Rico within four years—discourage fund formation. He described the four‑year window as reasonable and consistent with the law’s purpose of ensuring local investment. He also defended the requirement that funds raise at least $10 million within 24 months, noting that regulatory compliance demands a minimum operational scale.

He sees significant opportunities in healthcare, manufacturing, tourism, hospitality and renewable energy, and noted that Puerto Rico has already produced notable technology companies with regional reach.

Talent Shortage is a Problem

But even as the panelists highlighted Puerto Rico’s advantages, they were candid about the challenges—and none is more urgent than talent.

Puerto Rico now has 180 registered Act 185 and Act 60 private equity funds, a number that requires a deep pool of analysts, associates, accountants, lawyers and operators. Yet the Island’s talent pipeline remains thin, and many of Puerto Rico’s most highly trained young professionals are building careers in New York, Boston, San Francisco and other financial hubs.

Meduña, who has three daughters working stateside in tech and private equity, described the difficulty of bringing them—or their peers—back home. “They say, ‘Dad, I want to go back and do what you did,’” he said. “And I said, it’s impossible to do what I did in this time in Puerto Rico. It just doesn’t… it’s not going to happen.”

He explained that the economics simply do not work for many local funds. “You raise a $100 million fund—that’s $2 million in management fees a year,” he said. “To bring an analyst who graduated from Wharton, now working at Goldman Sachs, it costs you half a million bucks to bring him back. There goes your management fee. That’s only one guy.”

Stella agreed that the talent shortage is real but argued that Act 60 has begun to shift the landscape. “I personally know young Puerto Ricans working in the U.S. who have been getting private equity jobs in Puerto Rico because the firms are now based here,” he said. He added that some managers are intentionally recruiting Puerto Rican analysts abroad. “Under equal terms and conditions, they will probably hire a Puerto Rican—and they want them to be here.”

But Stella stressed that a mindset shift is needed among Act 60 managers themselves. “There should be a voluntary mindset to really try to have the bulk of their operations on the Island,” he said. “I want to import new DNA to the Island to just make it happen. It’s not just ‘I want to be here and have my office in New York.’”

Labor Laws and the Need to Hustle

Canto added that Puerto Rico’s labor laws compound the talent challenge. “The labor laws are tough,” he said. “We had to figure out how to deal with that and leverage the human capital. Modernizing labor laws would make Puerto Rico more competitive.”

Penzini also criticized Puerto Rico’s labor laws as outdated and counterproductive, arguing that they discourage hiring and contribute to low labor‑force participation. “These laws make people earn less money and increase unemployment,” he said. He contrasted the Island with Florida, where tax simplification and labor flexibility have helped attract business migration and investment.

Limited Local Investor Pool

The Island’s limited pool of local investors also remains a constraint—a point underscored in a separate interview with Fontán, who said Puerto Rico’s private equity incentive program is finally gaining traction after a slow start, but still needs greater visibility, investor education and demonstrable success stories.

He noted that Act 60 offers a powerful tax benefit: “The deduction—if you invest through a Puerto Rico private equity fund, the deduction is 60%,” he said. “It dramatically lowers the cost of investment and is designed to channel capital into local companies.”

Fontán said the sector’s biggest structural challenge is that private equity funds cannot broadly market themselves due to federal restrictions. “It’s not easy to market a private equity fund,” he said. “You depend heavily on credibility and word of mouth.” That makes success stories essential. “As more success stories emerge, more people will feel secure investing in these funds.”

He also acknowledged that Puerto Rico still lacks a deep pool of local investors capable of supporting large funds. “Managers are forced to seek capital outside the island,” he said, noting that this is typical of emerging markets. But he believes the long‑term outlook is strong. Act 60 private equity decrees last 15 years, with the possibility of a 15‑year extension. “As that structure gains credibility,” he said, “I have no doubt Puerto Rican investors will continue investing.”

Back to the panel, Stella described deal flow as one of the top determinants of private equity success—and one of the Island’s biggest constraints. “If you sit down in your office in private equity in Puerto Rico, it’s going to be very hard to find amazing deal flow,” he said. “You have to hustle.” His firm analyzes more than 150 deals a year, the vast majority outside Puerto Rico.

Meduña echoed that while Puerto Rico once offered a steady stream of niche opportunities—from telecommunications to ambulatory surgical centers—those opportunities are harder to find at scale today.

Still, the panelists agreed that Puerto Rico has the ingredients to become a world‑class investment hub. The legal framework is strong, the regulatory environment is workable, and the island’s geographic and cultural position offers access to both U.S. stability and Latin American growth. But they were equally clear that Puerto Rico must make deliberate choices to strengthen its ecosystem.

As Stella put it, world‑class performance is possible from Puerto Rico—but it requires intention. “If you’re world‑class, people will find you,” he said. “You will carve out your own niche.”

The sector’s rapid expansion suggests that many firms are already doing just that. The question now is whether Puerto Rico will build the broader infrastructure needed to sustain the momentum.