Emerging markets: Brazil, redeemed

Better times may be ahead for Brazil. The worst of the recession seems to have passed and the nine-month attempt to impeach president Dilma Rousseff has finally succeeded. Now, limited partners believe it’s a good time to invest in the country again.

Fundraising in Brazil tends to be feast or famine. Yearly fundraising totals have gone as high as $8 billion in 2011 and as low as $416 million in 2013, according to PEI data. In 2015, fundraising had a rough year – two vehicles raised $606 million.

Many investors shied away from investing in Brazil during its choppier periods, but they are now returning to the country. More than half of international LPs, 59 percent, want to access Latin America via Brazil-focused funds in the next three years, according to a survey from the Latin American Private Equity & Venture Capital Association. Almost a quarter of the region’s own LPs expect to commit to a Brazil-focused fund in the same period.

There are signs activity is already recovering. In the first six months of 2016, private equity firms invested $1.7 billion in Brazil, down from $2.3 billion in the first half of 2015 but almost double the $900 million invested in the second half of last year, according to the LAVCA.

The devaluation of the real has also created opportunities for those investing in US dollars. It has even prompted Rio de Janeiro-based Bozano Investimentos to launch its first dollar-denominated fund in March, Bozano Growth Capital Fund, targeting $300 million.

And while the exit market has mostly focused on acquisitions by strategic corporates, there are also some glimpses of opportunities in the public markets. At the end of October, medical diagnostic company Alliar raised $243 million in the first initial public offering in the country since 2015.

Despite these encouraging signs, valuations remain high, considering the dire economic situation in the country.

“Not all companies are cheap, but you can find good companies at more attractive valuations than they used to be,” Cate Ambrose, president of LAVCA, tells PEI. “But of course, you have to be careful about what you’re acquiring.”

Committing capital to Brazil isn’t for the faint of heart.

The economy is still in a recession, and its future is uncertain. The introduction of an interim government may have stabilised political matters, but 2017 could still be an interesting ride for the country’s investors.