Siguler Guff off to a flying start in Brazil

Siguler Guff has had a busy year in Brazil, taking advantage of the hyper-activity in a country that is experiencing a wave of private equity deals and fundraisings. The fund of funds opened its office in Sao Paulo in February; it has already committed at least $90 million to managers, and is likely to finish the year with $100 million in total commitments.

Siguler Guff is doing these deals through its second fund for so-called BRIC (Brazil, Russia, India and China) investment, which closed on about $893 million in 2008 (the first closed on $633 million in 2005). The firm employs about 70 percent of the fund for commitments to managers and 30 percent for co-investments, according to Cesar Collier, a managing director with the firm who runs the firm’s Brazil office in Sao Paolo.

Although Collier claims Siguler is looking more for co-investment opportunities than fund commitments at the moment, he concedes that the firm is always open to solid managers. So what are its criteria? “Track record is the first big filter,” says Collier – so no first-time shops. Beyond this, Siguler looks to see what  sort of investments the manager targets – whether they prefer to take control positions or minority stakes, for example. It also examines how the manager adds value to the companies in which it invests, or as Collier puts it: “How has [the manager] contributed to improving the companies?” The team is important, he says, including how long they have been working together.  And diversification is also crucial: “We try to diversify into these different strategies and look into niches not covered yet,” he says.

Collier joined the fund of funds in February from Standard Bank, where he worked as a vice president analysing investment opportunities in retail, consumer goods and logistics industries.  “Brazil is very fertile ground for private equity and there are a lot of opportunities out there,” Collier tells Private Equity International. “A lot of companies here want to join up with leading investment firms and want institutional partners to lead them to the next growth level. This provides a good playing field for private equity firms,” he says.

Brazil has certainly been one of the hottest stories in private equity over the past year. Capital has poured into the market, with several new funds closing this year. Recent examples include Vinci Capital, which collected $1.4 billion for its debut fund; BTG Pactual, which closed its latest private equity fund in June on $1.5 billion; and Gavea Investimentos, which collected $1.8 billion around the same time.  There has also been lots of M&A activity.

But although this rush of capital has made the market much more competitive, Collier insists the macro fundamentals that have made Brazil attractive to investors over the past few years have not changed. “It’s a huge market. There are huge investments to come in infrastructure, in logistics, in retail and consumer goods,” he says. “There’s definitely going to be a lot of investment, and private equity penetration is still low. It will get more crowded, but there will be space.”

Siguler is already seeing a degree of overlap in terms of firms chasing the same deals, he says. But Collier says that its proprietary deal pipeline is robust. More importantly, he believes that companies in the country have an appetite to team up with private equity partners. “There are so many mid-sized companies being undersold by the banks, by consultants, by management teams. These guys are so thirsty to grow, and so thirsty to have a stamp of quality that private equity will bring to them, they are willing to give away a bit of the upside of the price to get to the next level,” Collier says. That’s good news for managers.