For buyout firm Hicks, Muse, Tate & Furst, Latin America is the next frontier.

The Dallas-based firm is seeking to raise $500 million for its first Latin American equity fund, which is expected to close early in 1998. And it has allocated 20% of its third fund, the $2.5 billion Hicks Muse Tate & Furst Equity Fund III, to Latin American investments.

"We're seeing a nice confluence of events, with demand exceeding supply of capital, economic conditions stabilizing, and the governments becoming increasingly democratic," said Alan B. Menkes, a partner with Hicks Muse. As a result, the firm said, it expects to devote a significant part of its funds toward Latin American investments.

When Hicks Muse first ventured into Mexico in 1992, asset values and lending activities were strong, and there was little demand for private equity. But that changed with the peso's devaluation in 1994.

Now the public equity markets can support only well-established companies-and the debt markets are prohibitively expensive. At the same time many large family-owned conglomerates are restructuring their balance sheets and shedding noncore assets, causing the demand for capital and management to far outstrip the supply.

"It's a little early to determine the availability of financial products, because we're using a modest amount of leverage," Mr. Menkes said.

"But if we continue to see the smoothing out of the boom and bust cycles, then there will be an increased use of leverage and availability of product."

Other American buyout firms that have started Latin American funds of their own include Advant International, Westpier Capital Associates, and Texas Pacific Group, according to Securities Data Co.

Since last year Hicks Muse has made six Latin investments, amounting to about $500 million.

In a venture with Chilean businessman Alvaro Saieh, Hicks Muse led a group of investors-including Blackstone Group, Royal Bank of Canada, and Chase Manhattan Corp.'s Capital Partners-to invest $350 million in financial institutions throughout Latin America.

Mr. Saieh matched that investment with a $350 million contribution of his own.

Separately, Hicks Muse invested $13 million in Vidrio Formas, a family- owned Mexican glass manufacturer that was over-leveraged and needed capital to retire its debt and expand the size of its business plan.

Union Bank of Switzerland, Bankers Trust New York Corp., Chase Manhattan Corp., Societe Generale Securities Corp., and J.P. Morgan & Co. have mined Latin America relationships to bring ideas in the food, cable, and manufacturing industries to Hicks Muse. The firm invests in these industries there in the United States.

Typically, one person at a bank brings deals-whether domestic or foreign-to the firm, Mr. Menkes said.

"We're seeing a lot of the same faces,"he said. "To deal with one point person makes our lives easier.

They can direct us elsewhere in the bank, but we view it as a positive to have the relationship management covered by the same group."

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