Fraga Leads Brazil Private Equity Beyond India as Selic Falls

Brazil’s private equity and venture capital industry will grow by more than 20 percent this year after it overtook India in fund raising, according to the Brazilian Association of Private Equity and Venture Capital.

The most aggressive interest-rate cuts among Group of 20 industrialized nations are encouraging Brazilian pension funds to sell government bonds and invest in private equity, said Clovis Meurer, president of the association known as Abvcap. The central bank has cut the benchmark rate, known as Selic, 4 percentage points in the past 10 months to a record 8.5 percent. Increased support from Brazil’s development bank and antitrust regulation changes also are boosting the business, he said.

“With the constant fall of the benchmark Selic, the pension funds have been seeking alternatives to government bonds,” Meurer said in a phone interview yesterday from Porto Alegre, Brazil. “That has been very good for the private equity business.”

Brazilian buyout funds led by former central banker Arminio Fraga’s Gavea Investimentos Ltda., BTG Pactual and Vinci Capital Gestora de Recursos raised $7.1 billion last year, up from $1.1 billion in the previous year, according to an annual report by the Washington-based Emerging Markets Private Equity Association. Chinese buyout funds raised $16.6 billion while Indian firms took in $2.7 billion and Russian firms lured $135 million, according to the group.

Buyout funds in Brazil invested $2.5 billion in 47 deals last year, compared with China’s $10.5 billion in 270 deals, India’s $6.2 billion in 275 deals, and Russia’s $1.6 billion in 29 deals, according to the EMPEA report.

Fogo de Chao

Thomas H. Lee Partners, a Boston private equity firm, agreed in May to buy Fogo de Chao, the churrasco-style steakhouse with restaurants in Brazil and the U.S., from GP Investments Ltd. for an enterprise value of $400 million.

Brazil’s central bank reduced the benchmark lending rate to a record 8.5 percent in May, saying the economy is recovering at a “very gradual pace” and the risk of inflation remains limited.

The country’s development bank, known as BNDES, plans to invest 1 billion reais ($484 million) in Brazilian companies through private equity and venture funds until 2014, Luciano Coutinho, its president, said in a speech April 16 at the opening of an Abvcap conference.

Brazil increased last month the minimum revenue of companies involved in merger and acquisition deals to be analyzed by the country’s antitrust regulator, known as Cade.

Deal Regulation

The minimum revenue rose to 750 million reais from 400 million reais for the larger company in a transaction and to 75 million reais from 30 million reais for the smaller company, according to a decision published in the official gazette last month. New rules also require that companies report deals before they are closed.

“The very important rules will make these business operations more efficient,” Meurer said in the phone interview yesterday. “On the other hand, there is some concern that the operations could take more time because Cade must approve them first now.”

Brazilian pension funds were first allowed to invest in private equity in 2003 with the introduction of fundos de investimento em participacoes, or FIPs, closed-end investment funds that could invest in public or private companies, according to the EMPEA report. In 2009, the national monetary council allowed pension funds to invest up to 20 percent of their assets into domestic or real-denominated private equity.

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