Friday Letter See you in Sao Paulo

A who’s who of private equity GPs have been going to Brazil this year – many for the first time. The reason? To take part in the market’s ‘energia fantástica’, as evidenced this week by the $1.2bn final close on Gavea Investimentos’ third fund.  

A Sao Paulo-based GP flying home recently from New York remarked that his airplane was chock-a-block with other GPs. Many of them were going to Brazil for the first time to determine whether they, like so many other firms, should establish a beachhead in this particular BRIC.

Judging by plane trips alone, Sao Paulo appears to be the next Mumbai for expansionist private equity firms.

There have been sightings of Kohlberg Kravis Roberts professionals in Brazil, scouting the terrain and considering when and where to open an office, a source told PEO. Apollo Global Management has been there too, weighing opportunities in the booming ethanol space.

The Carlyle Group, which to be fair has left unconquered only the continent of Antarctica, recently hired the former head of AIG Capital Investments do Brasil, Fernando Borges, to create a private equity investment business in the country.

The northern hemispheric groups to arrive in Brazil are finding an entrenched, battle-scarred set of local firms that are, in fact, quite welcoming of the new arrivals, who they view as both partners and rivals. There is another benefit of a more crowded market – being that Brazilian GPs raise most of their capital outside of Brazil, the presence of Carlyle, KKR, et al, sends a signal to limited partners everywhere that Brazil has arrived as a private equity market, and is therefore worthy of an institutional allocation.

Not that serious investors haven’t already put some Brazilian flavour in their portfolios.

With a significant commitment from Harvard University, Rio-based Gavea Investimentos this week announced the close of its third private equity fund, which rounded up a total of roughly $1.2 billion (€775 million).

Gavea is run by Arminio Fraga, the highly respected former head of Brazil’s central bank. In an announcement about the fund close, Fraga noted a “change of mentality” within Brazil’s business culture that bodes well for private investors. He also spoke of “energia fantástica” in the market (remember that for your next trip down).

Many thought that Brazil’s “country of the future” appellation reached an expiration date sometime in the late 1990s. Unless planeloads of well-heeled GPs are wrong, the appellation has been renewed.