Prep School’s $27,700 Tab Lures Buyout Funds to Brazil

As Brazil’s economy swoons, private-equity firm KKR & Co. and a handful of local billionaires are betting families will cling to one of the perks of the past decade’s progress: private schools for their children.

KKR’s Cognita Schools last month bought part of a Rio de Janeiro school, two years after buying an institution in Sao Paulo, where the most expensive schools charge more than $27,700 a year. Billionaire Julio Bozano is raising 800 million reais ($300 million) for an education fund, documents show. And New York’s for-profit Avenues School plans to open a Sao Paulo outpost in coming years.

Brazilians are spending more on private schools after the decade-long economic expansion added 44.7 million to the middle class. Investors say Brazilians pinched by the slowing economy will give up eating out and other personal expenses before putting their kids back in public schools.

“The quality of Brazil’s public schools is terrible, so that’s the top priority for families making a little more money,” said Marco Gregori, a former for-profit college executive who’s seeking $23 million for a fund called Eduinvest to buy private elementary and high schools.

Public School Drop

Enrollment in K-12 private schools in Brazil climbed 24 percent in a decade to 8.6 million last year, while enrollment in public schools fell 9.5 percent to 50 million. The responsibility for public schools lies with municipalities and states, the Ministry of Education said in an e-mail.

Manhattan’s Avenues School, which touts plans to build campuses in 20 or more of the world’s “leading cities” on its website, will announce a Sao Paulo location soon, said Alan Greenberg, president of Avenues for the Americas, Europe, Middle East and Africa. The school, which charges annual tuition of $43,400 at its New York campus, is backed by $75 million in financing from its founders and two buyout firms, LLR Partners Inc. and Liberty Partners LP.

The lengthy waiting lists at the British and American schools in Sao Paulo show strong demand, Greenberg said. Those schools -- which employ expat teachers, have one-on-one music classes and offer study-abroad programs -- charge more than 74,000 reais a year for high schoolers, with an entrance fee of up to 35,000 reais, according to school documents.

Upper Class

“The largest piece of it is the upper-middle and upper-class Brazilians who have the means and aspirations to want an international education for their children,” Greenberg said in a telephone interview on Dec. 23. “The number of new schools that have been built has just not kept up with the growth of demand.”

The number of high net worth individuals -- people with at least $1 million of investable assets -- in Brazil grew by 17 percent between 2009 and 2013, according to the World Wealth Report, compiled by Capgemini Financial Services and RBC Wealth Management. Middle class in Brazil is defined as those whose annual household income is 24,060 reais or more.

Gregori, 44, said in a phone interview from Sao Paulo that there are probably even more Brazilians willing to pay monthly tuition of 450 reais to 1,000 reais. Gregori owns two schools and wants to buy eight more before taking the company public. He spent seven years as a top assistant to Gabriel Mario Rodrigues, who sold the for-profit college company Anhembi Morumbi to Laureate International Universities in 2005 for an undisclosed ammount.

Acquisition Targets

“These small companies are acquisition targets for bigger investors who can build large networks of schools,” Gregori said.

The proliferation of for-profit K-12 schools comes after the higher-education industry produced some of Brazil’s richest people, among them Janguie Diniz, who became a billionaire by the 2013 initial public offering of Ser Educacional SA.

Shares of for-profit college chain Kroton Educacional SA, which has 124 campuses and 667 distance-learning centers with a combined 1.1 million students, surged 69 percent this year through yesterday, the best performance on Brazil’s benchmark Ibovespa index, which lost 1.77 percent.

Kroton fell 5.1 percent to 15.74 reais at 5 p.m. in Sao Paulo trading.

Billionaire Jorge Paulo Lemann, whose 3G Capital Inc. investment firm teamed with Warren Buffett’s Berkshire Hathaway Inc. last year on the $23 billion takeover of ketchup maker HJ Heinz Co., is the principal investor in Gera Capital Venture, an education-focused investment fund, according to Gera’s LinkedIn page.

Safety

Gera will make investments in elementary, middle or high schools, a person with knowledge of the matter said.

Bozano Investimentos didn’t respond to a phone call and e-mails seeking comment. Gera officials didn’t respond to an e-mail. KKR declined to comment by e-mail.

It’s not just better education that newfound wealth brings, Gregori says -- it’s safety and security.

“Quality is very important,” Gregori said. “While the super-rich are looking for status as always, families whose lives have improved in recent years want their young to escape from the routine of violence and sexually-charged atmosphere we see in public schools.”

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE