Private Equity in Brazil
Considering Private Equity Investing in Brazil
As the American economy has tanked this year, Brazil’s financial markets have demonstrated strength despite the global credit crunch. Equally encouraging is the enthusiasm for private equity and venture capital in the country. Private equity has the potential to play a huge role in Brazil’s economy as only 500 of the nation’s 12 million companies are publicly traded.
With such a huge pool of private companies, it’s no wonder that investors are favoring the country more and more. In a 2009 survey by the Emerging Markets Private Equity Association (EMPEA) asking limited partners about their plans for investing in emerging markets, Brazil was rated the second most attractive place for investment. According to the survey, Brazil is set to receive the largest boost in net investors over the next 1 or 2 years. 17% of current emerging markets investors expect to increase their holdings in the country and 11% plan to enter the market for the first time.
One reason that Brazil’s private equity industry has been less vulnerable than others is because it does not rely heavily on leverage. So, when the credit market dissolved, Brazillian private equity firms were already used to executing deals with little-to-no leverage. Further evidence for the huge potential in Brazil is that few institutional investors are investing with private equity firms, leaving a largely untapped pool of capital. Currently, Brazilian pensions funds only put 2% of their money in private equity well below the global average (8 to 10%).
The recession has also led regulators to lower Brazil’s interest rate to a historic low of 9.25%. Steve Rubens of Seeking Alpha thinks this could inspire investors to move away from fixed income investments toward alternative assets. He believes that two forces are working in the private equity industry’s favor, “The first is an increasingly favorable regulatory and business environment and the second is a diversity and abundance of investment opportunities appropriate for private financing.”
Tags: Brazil Private Equity Investment, Brazil Private Equity, Private Equity in Brazil, Emerging Market Brazil, Brazilian private equity, Brazil Private Equity