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Investor Appetite for Private Equity Exposure in Brazil – May 2014

by Alastair Hannah

  • 21 May 2014
  • PE

As the 2014 FIFA World Cup approaches, all eyes are watching the largest and most populous country in South America with great anticipation. Such attention also inevitably reopens analysis and debate on the enormous social and economic changes seen in Brazil, as well as the opportunities that lie within. 

From 2003 to 2014, Brazil has reportedly seen its middle class population double from 60 million to 120 million. It is hardly surprising, therefore, that investors continue to rush, in particular, for exposure to companies that supply consumer goods to such a ballooning demographic. According to Preqin’s latest global investor survey, Preqin Investor Outlook, H1 2014, the number of investors that think Brazil offers the best private equity emerging markets investment opportunities has fallen from 12% of respondents in December 2012 to 9% in December 2013. 

Despite this decreased appetite for investing in Brazil, according to Preqin’s Investor Intelligence online service, there are 441 institutional investors that regard South America as a preferred private equity investment destination. US-based investors account for almost half (48%) of all investors who have shown a preference for exposure in the region. Perhaps unsurprisingly, pension funds account for the greatest number of global investors with a preference for South America-based exposure. Forty-four percent of all pension funds which have a preference for investments in South America are based in the US, 17% in Brazil and 8% in the UK. 

As the largest economy in the continent, Brazil typically commands the greatest inward investment from private equity firms. Pátria Brazilian Private Equity Fund V, a Brazil-based buyout fund currently on the road seeking to raise $1.5bn, has recently received a capital commitment from Teachers’ Retirement System of Louisiana (TRSL). Such an investment from TRSL represents a growing optimism for growth in healthcare and consumer products in Brazil over the long term. 

Latin America Alternatives Capital Partners, a Massachusetts-based private equity fund of funds manager, is among the pool of investors that are looking to gain exposure to the Brazilian market. The fund of funds manager is planning to commit between $15mn and $25mn across two or three growth funds in Latin America. It sees Brazil as presenting some of the best opportunities for growth. 

Although estimated growth in the Brazilian economy is not as substantial as it has been in the last three years, many institutional investors still recognise the valuable venture capital and buyout opportunities that exist in a country where a growing middle class is increasing the demand for consumer goods and associated industries.

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