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Investment in Brazil private equity 'significantly increased'

Date added: 27th January, 2011 at 14:42
(view all articles from January, 2011)

Investment in Brazil's private equity has grown almost sixfold in the past six years, it has been reported.

Daniel de Souza, Porter Leslie, Jose Luis Gonzalez Pastor and Carol Strulovic, students of the 2012 Lauder Class at Wharton University of Pennsylvania, noted macroeconomic policy, changes in regulations and improved market conditions have caused an "unprecedented expansion" in this area since 2004.

The "encouraging" moves in Brazil are "especially compelling when juxtaposed with a relatively discouraging set of realities in other parts of the world", the authors commented.

Adding to the attractiveness of the country to investors is the arrival of the World Cup to the nation in 2014, followed by the Olympics in 2016, while the move of a significant proportion of the population into the middle class also presents a good opportunity.

Indeed, there was an expansion in the proportion of the population identified as being Class C - those with an income of between $581 (£365.61) and $2,508 per month - from 42 per cent to 52 per cent between 2004 and 2008.

Brazilian property may be one of the areas within which people choose to invest in Brazil, as the increase in wages and availability of credit has led to individuals buying more homes and other luxury goods.

Meanwhile, the IT, retail and industrial sectors are the ones receiving the bulk of the $28 billion going toward the country's private equity today.

Another event that has encouraged speculators to plough their money into Brazil is the upgrading of the nation's government debt rating to investment grade and the writers stated that further growth of Latin America's largest economy is "seemingly imminent".

Since 1995, Brazil has enjoyed a period of relative stability that has driven the country's growth over the last ten years. It was spurred by the introduction of the real, an increase in the nation's reserves of foreign currency and lower net debt levels.

Appetite for investment in Brazil has been growing since 2003 and a study by the Emerging Markets Private Equity Association, cited by the authors, showed 11 per cent of limited partners were planning to enter the nation's market in 2010, while 17 per cent intended to increase the amount of money they were ploughing into the country.

Regulatory changes have been instrumental in increasing the attractiveness of Latin America's largest economy to investors, the writers stated, while programmes such as Bolsa Familia have helped lower income families to join the now 100-million-people-strong strong Class C.

One fund manager who has claimed to be taking advantage of the income increases of the Brazilian population is client portfolio manager for the emerging market equity team at JP Morgan Asset Management Emily Whiting, who recently told Tomas Hirst of Fund Strategy that she sees more opportunity in domestic demand than the country's energy industry.

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