Latin Finance - May/June 2010 - 38

brazil private equity

publicly-listed investments, which has boosted managers’ relative allocation to PE. Worse still, many PE funds are sitting on commitments that they have not drawn down and have parked assets in low-yielding, short-term treasuries. The upward valuations of public equity are now easing the skewed allocation issues, giving a boost to PE fundraising, the São Paulo-based manager adds. In 2008, the PE and VC industry hit a record, according to the most recent data available from the Brazilian Association of Private Equity and Venture Capital (ABVCAP). The total of capital committed to investments at the end of the year was $27.1 billion compared to $16.7 billion in 2007. Some 58% of the capital committed to PE and VC came from foreign investors Foreigners not committing, says Maluf who raised roughly $1.11 billion through the first semester of 2008. For local PE, fundraising prospects are 11.25%, from 8.75% in late March could also improving. A change in pension fund dampen the enthusiasm of these funds to leave their fixed-income cocoon. regulations published last September by market regulator CVM (Resolution 3792) Newcomers Bring Funds increases the allocation limit to a range If the gelid conditions of international of assets including PE and will drive up fundraising are only slowly improving, the estimated average current allocation local banks have shown zeal in of 2%, Chameh predicts. The legislation committing to PE after years of neglect. allows funds to invest up to 20% in Itaú-Unibanco, a joint venture between structured investments, which include Bradesco and Portugal’s Banco Espírito private equity funds. Brazilian pension Santo (BES), and an offshoot of BTG are funds recently passed the $500 billion reais in assets under management marker, all up and running. Itaú-Unibanco’s Kinea – the bank has according to the Brazilian Association an 80% stake with the 20% balance held of Closed Pension Fund Operators by partners – was kick-started with senior (ABRAPP). Large local firms such as hires from AIG Capital Partners under Pátria, GP Investimentos and AG-Angra Cristiano Lauretti. The Brazilian bank Investimentos have been successfully provided 250 million reais in seed money tapping into that liquidity. However, Maluf cautions PE Funds Raised By Regional Focus ($bn) that the ballyhoo over pension LatAm slips with overall market fund investments may be overdone, adding that they 2007 2008 have historically been slow to Emerging Asia 28.70 39.70 move into PE. They were badly CEE & CIS 14.60 5.60 wounded by experiences in the past, such as legal issues LatAm/Caribbean 4.40 4.50 surrounding the privatization MENA 5.30 6.90 of Brasil Telecom in 1998, Sub-Saharan Africa 2.00 2.20 which cast a long shadow over the industry, notes Maluf. The Multi-region 4.10 7.70 anticipated rise in interest Emerging Markets 59.20 66.5 rates this year, with the latest (# Funds with closes) (204) (210) central bank poll of economists Source: EMPEA suggesting a year-end level of

for the firm’s first fund and is likely to co-invest in future ventures as Kinea is the bank’s sole outlet for PE under the shareholder agreement, notes Lauretti. Kinea is already working on its first transactions and hopes to close two or three this year, says Lauretti. One of these deals is worth 300 million reais for which the fund has already secured additional investors, he says. Lauretti notes that he is looking for investments in larger companies because of concerns about exit strategies as the IPO market balks at deals from small firms. “PE firms will have to hold stakes for a longer period and try to maximize the value of the companies before they move ahead with IPOs,” he predicts. The speed with which Kinea has identified investments means that a planned fundraising will be delayed until next year to allow the team to focus on closing deals rather than marketing, adds Lauretti. Brazil’s other major private sector bank, Bradesco, has teamed up with BES. They have committed 50 million reais apiece to a planned 500 million reais first fund for PE venture 2bCapital. The latter is a multi-sector vehicle dedicated to companies with more than 100 million reais in annual sales. For now, such funds are small fry. However, they are well positioned since Brazilian banks are showing strategic willingness to provide seed capital, and they also have robust relationships on the ground. Domestic banks also have extremely strong investor bases, including significant share of the private banking flow. The giants of the PE universe that have not been active in Brazil, particularly 2009 US names, are also paying 15.90 much more attention to the 1.60 country. Warburg Pincus recently re-opened its office in 2.20 São Paulo under Alain Belda, 1.10 former president of aluminum 1.00 maker Alcoa. Moreover, an investment arm of Texas Pacific 0.80 Group (TPG) took a roughly 22.60 $30 million stake in Brazilian (196) carrier Azul at the start of 2010. Local PE players say

38 LatinFinance

May/June 2010
Latin Finance - May/June 2010

Table of Contents for the Digital Edition of Latin Finance - May/June 2010
