Brazil: The keys to success

Author: | Published: 1 Oct 2010
Email a friend

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

The volume of private equity investment funds directed at Brazilian companies has grown in recent years. Nowadays, it is becoming more and more common to come across companies that have risk capital funds as members. The development of the industry is interesting from a number of perspectives, some of which are:

Regulatory environment: The private equity funds (Fundos de Investimento em Participações) are regulated by Ruling CVM 391/03 and have been a major vehicle in industry, allowing investors and fund managers to align their rights and duties and providing real market conditions for investment. This has made the investments more secure. Also, aiming all the time at improving the market, the creation of a regulatory code and best practices were studied with the objective of enhancing the efforts at transparency in the performance of private equity activities, in addition to standardising practices and processes. This increased ethical standards.

Minority investments: There is growing space in companies for minority investments by private equity funds. Brazilian business people are becoming more and more able to receive investments of this type, and at negotiating a shareholders' agreement that guarantees the rights of the fund as a minority stakeholder principally in relation to veto rights and selling rights (tag along and drag along).

Foreign investors: The number of foreign investors interested in making capital contributions in Brazilian private equity funds has risen sharply, stimulated by the current macroeconomic scene in the country and by the opportunities for new investments. The positive performance of Brazil during the crisis has made it attractive globally and factors such as a stable economy, the World Cup in 2014, the Olympic Games in 2016, the discovery of more oil and a structured capitals market have contributed to making it more visible and more interesting from a foreign perspective.

Pension funds: With the need to diversify investments in a scenario of low interest rates, pension funds must continue to look for opportunities to invest in private equity funds. In spite of this, however, the pension funds do not appear to be very keen in not participating in the investment committees, which hold the decision making power. In private equity funds that capture abroad, the situation is exactly the opposite. Foreign investors do not want to participate in the investment committees and would prefer that the manager work independently. Certainly the discussion about how the pension funds in Brazil will be able to add value to the funds that they invest in without interfering in the investment committees will evolve with time and with the maturing of the industry.

Infrastructure sector: This segment has been attracting the attention of the market on account of the prospects for new investments, stimulated by the economic growth and by the sporting events that will take place in Brazil in the coming years. The private equity funds will have a key role in supporting the development of the infrastructure in the country, by means of investments in projects in the areas of energy, logistics, sanitation, the environment, telecommunications, gas distribution and other infrastructure sectors.

There is no doubt that the private equity industry is becoming more consolidated every year, more representative of the national economy, and is largely responsible for the increase in the corporate governance of the companies.