While the precarious financial climate continues to cripple some of the most advanced economies in the developed world, particularly in the Eurozone, Brazil has emerged as one of the fastest growing economies in the world. It has recently overtaken the UK as world’s sixth largest economy, placing itself behind the US, China, Japan, Germany and France. The recent growth is expected to be aided by the hosting of the 2014 FIFA World Cup and 2016 Olympics.
This has both generated a considerable interest among international as well as domestic investors. In Preqin’s recent study, 25% of LPs with an appetite for private equity funds focused on emerging markets indicated Brazil as offering the best opportunities within those regions. Brazilian institutional investors have also recently welcomed changes in legislation which now allow Brazil’s pension funds to allocate a higher proportion of capital to private equity. Even though those pension funds have also been permitted to dedicate up to 20% of capital to overseas investments since 2009, most still restrict themselves to Brazil due to internal policies.
Preqin’s Investor Intelligence presently tracks 38 Brazilian LPs which actively invest in the private equity asset class and 193 international LPs which have invested in private equity funds focused on opportunities in country in the past. The majority (64%) of investors which have previously invested in funds targeting investments in the region are based in North America, followed by 19% of investors located in rest of world and 17% in Europe. A significant 36% of these LPs are public pension funds, while private equity fund of funds managers make up a further 12% and foundations represents 10% of those LPs which have previously invested in Brazilian-focused private equity funds.