- Hedge Funds
- Private Equity
- Forex
- Case Studies
- Agribusiness
- Renewable Energy
- Real Estate
- Technical Analysis
- Philanthropy
- Regulation
- Art
- Wine
- Commodities
- Emerging Markets
- Mining
- Ventures
Facing Challenges of Brazilian Private Equity: Part II
By Zack Henry & Eric Saucedo
Financial Transparency
This is perhaps the mother of all issues when considering the more common challenges in successfully raising private equity capital. And it’s not an issue solely relevant to Brazil and/or Latin America, as it is an issue facing any early-stage or middle-market company worldwide looking to raise capital via the private equity market. It is the subject of much frustration among private equity professionals and company executives alike, and perhaps the single most common reason why most potential transactions reach an unfortunate and untimely death.
Let’s first remember that a principal factor of the current financial crisis was the simple annihilation and obliteration of trust. Investors lost trust in the financial system, they lost trust in bankers, ratings agencies, federal regulators, the words “collateral” and “obligation,” and in the American dream of home ownership. Even “In God We Trust” lost plenty of strength and credibility as the US greenback fell to and continues to trade at historic lows. Call it “The Great Recession,” “The Great Depression 2.0,” or just the global financial system going to hell in a hand basket. The point is that financial transparency fell by the wayside and with it went investor trust.
Challenges for Successful Private Equity Investments in Brazil
By Zack Henry & Eric Saucedo
Someone forgot to tell Brazil that we’re in the middle of the worst global recession in history.
Brazil is quickly becoming a political and economic leader in Latin America and the world. As with the rest of the global economy, Brazil entered into a recessionary period in 2009, but economic data that have been emerging from the Instituto Brasileiro de Geografia e Estatística (“IBGE”) increasingly point to a stabilization in the economy, further suggesting that the country has perhaps been less impacted than other markets in this global recession. After the 4.4% quarter-on-quarter decline in 4Q08 and a subsequent 3.5% decline in 1Q09, the country’s GDP reached US$417.8 billion at 2Q09, up 5.2% from the prior quarter, and projected GDP growth for the second half of 2009 is running at about 4.0% or even higher
(see Figure 1).
Many economists point to Brazil’s changing trade patterns as an important shield from the global recession as this year, for the first time, China overtook the United States to become Brazil’s single biggest trading partner. In addition, as copper and oil prices have remained relatively strong, Brazil’s commodity-based economy continues to demonstrate strong expansionary growth, and consumer spending, up 2.1% in 2Q09, represented the 23rd consecutive quarter of growth. Any PhD in economics can tell you, in technical terms, that this is ginormous
Steady in the storm with regional opportunites
After a decade of steady growth Central America is weathering the global financial downturn comparatively well and continues to offer regional opportunities for private equity. Historically, this small, diversified region has suffered from armed conflict, political instability, weak institutions and a lack of legal frameworks and enforcement. However, stable democratic governments allied with disciplined fiscal policies brought an unprecedented period of growth in the past decade with steady growth rates on average above 5%. According to IMF figures from 2006 Central America with 5.5% Real GDP growth was second only to Latin America and the Caribbean with 5.9%. Through interviews with some of the main players in the region Alternative Latin Investor has found that in addition to the countries within Central America nations such as Mexico, Colombia, Peru and Ecuador are increasingly becoming of interest to private equity investors looking for more region wide plays as opposed to focusing on a particular country. Peru and Colombia have been and are two countries that have demonstrated stability in fiscal terms for Peru and with internal security matters in Colombia.
The nature of Central America with its small countries is dictating that small or regional investments are attracting the most private equity interest. Mark Bishop from The Provident Group feels that the conditions investors have been waiting for are now becoming reality “Initially, back in our earlier days we did a lot of work in Central America ourselves. We were early in the game there. We thought there was going to be a lot more consolidation regionally. It looks like it’s becoming a lot more interesting now”. When asked by Alternative Latin Investor if The Provident Group would now be refocusing on the region Mark Bishop is optimistic but cautious “the problem with Central America was and remains, very fragmented economies, small markets and lack of experience with legal transparency –it makes putting capital in there just much more difficult. At the end of the day people are going to cherry pick - there is going to be a couple of selective opportunities but its still a difficult market to get your arms round” .
