In recent months, a number of large managers have set their sights on both capital flows and investment opportunities in Brazil.
Ares Management committed $100 million of convertible preferred shares to Latin American investment firm Vinci Partners in October, which would be used for the latter’s strategic growth initiatives. Meanwhile, Patria Investments has become the new owner of Abrdn’s European private equity business as it seeks to build out its mid-market alternatives offerings in the domestic market.
Ares Management’s chief executive, Michael Arougheti, said on the firm’s third quarter results call in end-October that its strategic partnership and investment in Vinci would mean more collaboration on distribution, product development and other business opportunities in Brazil, as well as across Latin America as a whole.
“We believe that the Latin American markets are in the very early stages of shifting capital into the private markets, particularly within private credit,” Arougheti said. “This is similar to the trends that we saw in the early 2000s in Europe and what we’re seeing now beginning to play out in the APAC region.”
For Vinci, the move puts the firm in a place where it can take advantage of the scale and migration of investor assets in the Brazilian market, Vinci chief executive and founding partner Alessandro Horta said on the firm’s investor day presentation in October.
Meanwhile, Mubadala Capital, the investment arm of sovereign investor Mubadala Investment Company, plans to invest more than $1 billion a year to expand its holdings in Brazil. It held a final close in October on $710 million for its second Brazil-focused fund, Brazil Special Opportunities Fund II. Capital raised for the vehicle will pick up control stakes in mature companies that are facing some form of complexity or distress and where the underlying business fundamentals are compelling, Mubadala said in a statement. The fund’s predecessor gathered $322 million in February last year.
A growing segment
Brazil’s private capital markets have flourished over the past three years. According to data from the Association for Private Capital Investment in Latin America (LAVCA), investments reached $11.3 billion across 587 deals in 2022, up from 305 deals worth $9.9 billion in 2019.
Brazil-focused fundraising also saw a year-on-year increase, with $5.1 billion raised in 2022 compared with $3.1 billion in 2021, LAVCA data shows. In addition, this year, some $2.2 billion has been raised as of end-September across 28 funds.
Brazil is the largest economy in South America, with resilient sectors including infrastructure, mining, oil and gas, and businesses associated with energy and the energy transition buoying much of its dealflow.
Political stability since the administration of President Lula da Silva took over in January has also been encouraging for investors. At the same time, Brazil’s currency has been boosted by a rise in commodity prices, the rebalancing of investment portfolios and increased interest rates.
In addition, since mid-2022 Brazil has had a trade surplus of approximately $86 billion, or more than 5 percent of GDP. This has led to a significant supply of dollars, subsequently resulting in local currency appreciation, Bruno Zaremba, chairman of private equity and head of investor relations at Vinci, noted on the firm’s investor day presentation.
Slice of the pie
Perhaps most noteworthy is the increased capital inflows coming into alternatives from both the country’s institutional investors and its growing high-net-worth population. Zaremba said the “slice of the pie coming to alternatives is growing”. This share is expected to increase over time, he added, due to Brazil’s demographics and the strong compound annual growth of its pension industry.
Assets managed by Brazil’s institutional investor market are estimated at about 7.6 trillion Brazilian reals ($1.6 trillion; €1.4 trillion) as of end-June. Although allocations are still heavily concentrated towards fixed income, exposure to alternatives has been increasing, from 9 percent of total assets in 2015 to 13 percent as of the end of the second quarter this year, according to data from the Brazilian Financial and Capital Markets Association.
