US private equity firm Darby Overseas Investments and Stratus Investimentos of Brazil have formed a partnership and are establishing a Brazilian joint venture to sponsor Brazil’s first local currency mezzanine fund.
No target has yet been set for the fund, but “It would be unusual to look for less than a $100m equivalent,” said Robert Graffam, managing director of Darby’s existing pan-Latin America Darby Latin America Mezzanine Fund.
The joint venture will be operated by a dedicated full time team of at least three people, in addition to drawing on the resources of its parents. In terms of making investments, Darby will control the decision making process.
“Creating a mezzanine fund denominated in Brazilian Real will enable domestic investors, mostly local pension funds, to diversify their portfolios by allocating their resources in long-term assets,” Darby chairman Nicholas Brady said in a statement. “We are confident about the investment climate in Brazil and our research, together with that of Stratus, indicates strong interest on the parts of investors and borrowers alike in a Real denominated mezzanine fund.”
“The interest is on both the demand and supply side,” Graffam said. “On the demand side, clearly most Brazilian companies would prefer to have mezzanine debt in their own currency, and not have the foreign exchange risk which is entailed in borrowing US dollars.”
Graffam said the Brazil-focused fund could be the first in a string of country specific mezzanine vehicles set up with local partners in Latin America. “It would make a lot of sense. Plus, it would be very complementary for any off shore vehicles that we have, because frequently we find situations where borrowers need more money than we can provide through one vehicle.”
Darby has a long history of investment across multiple private equity categories in Latin America. The firm launched its Darby Latin America Mezzanine Fund, the only dedicated source of mezzanine capital in Latin America, with $195m in June 1999. The fund has now committed $104m to seven investments. Graffam said the fund still has a year and a half left of its lifespan, and he doesn’t anticipate hitting the fundraising trail in 2003.
Stratus Investimentos is an independent investment management firm specialized in private equity and venture capital. The firm, founded in 1999 by Alberto Camões and Álvaro Gonçalves, is an asset manager authorized by CVM, the Brazilian securities and exchange commission, and recently raised a venture capital fund to invest in technology based emerging companies.