By Alexander Kliment
(Updated on 29 March 2011 to clarify information about the management of the Bertin, Energia São Paulo, DIBRA, and Volluto funds in fourth paragraph.)
March 29, 2011– Bradesco, Brazil’s second largest private bank, is set to launch a new R$2bn ($1.2bn) private equity fund, O Estado de São Paulo, reported on Monday.
The fund will invest the amount in small and medium-sized companies by the end of 2012, and is betting heavily on the consumer story of rising incomes and living standards in the country, according to the report.
Despite the size of the fund, this isn’t the first time Brazil’s retail banking heavyweights have waded into the private equity business. Itaú-Unibanco, Latin America’s largest private bank, formed the Kinea fund in 2009 to invest in education and health sectors, and state-controlled Banco do Brasil formed a $225m fund in July 2010 in partnership with global asset manager The Carlyle Group. Bradesco itself announced the launch of a $280m fund in 2009 with Portuguese bank Espirito Santo, but to date capital has not been fully raised.
According to Brazil’s securities regulator CVM, as of year-end 2010, private equity investments in the country totaled R$61.6bn ($36.8bn). The four largest funds were:
- Bertin: R$4.9bn (Managed by Citibank DTVM S.A.)
- Energia São Paulo: R$3.1bn (Managed by BNY Mellon Serviços Financeiros DTVM S.A.)
- DIBRA: R$2.8bn (Managed by Intrag DTVM LTDA)
- Volluto: R$2bn (Managed by Itaú-Unibanco S.A.)
Foreign funds are also taking increasing notice of the private equity opportunities in Brazil, and in Latin America more broadly. Blackstone Group, for example, bought a 40 per cent stake in Brazil’s Patria in September last year, and JP Morgan bought Gavea Investimentos a month later.
In 2010 private equity firms investing in the region raised a record $8.1bn, more than double the amount in the previous year, according to the New York-based Latin America Venture Capital Association (LAVCA). The jump was bolstered in part by the closure of capital raising for the two largest Latin America-dedicated PE funds to date: Southern Cross Group’s $1.68bn fund, and Advent International’s $1.65bn fund.
Brazil was the leading market for private equity interest in Latin America in 2010, accounting for nearly half of the PE deals and more than three-quarters of capital raised, according to LAVCA. And the country is off to a strong start in 2011.
“We have seen some important transactions in Brazil in the first quarter of 2011, with major deals from leading local players in that market, and an increasing focus on IT and business services deals,” said LAVCA President and Executive director Cate Ambrose, citing several recent deals:
- GP Investments committed $100m to Sascar Tecnologia, which uses technology to recover stolen cars.
- Riverwood Capital purchased 90 per cent of ALOG Data Centers for $127m.
- Advent International bought 50% of TCP, Brazil’s third-largest container port terminal, and raised $249m in an IPO of Brazilian restaurant operator IMC Group.
- Benchmark Capital entered Brazil in a joint deal with São Paulo’s Monashees Capital to back the startup Peixe Urbano, a website that offers tips and discounts for consumers in cities across Brazil.
Still, Brazil lags India and China in competition for PE investment, according to the Washington-based Emerging Markets Private Equity Association (EMPEA.)
Source: EMPEA. Note: EMPEA methodology differs slightly from CVM.
In terms of PE penetration in 2010, Brazil lags only India among the BRICs.
That said, the $36.8bn in total private equity capital committed in Brazil — up from just $5bn in 2000 according to the Fundacao Getulio Vargas — represents less than three per cent of Brazil’s GDP. And that means there is still much room for growth.
“The demand for venture capital (in Brazil) and supply from international investors is totally mismatched,” said Robert Linton of Brazil’s private equity assocation ABVCAP at a luncheon in New York earlier this month.