Brazilian pension funds are notorious for making private equity fund commitments contingent on a seat on a funds’ investment committee. That may change now that Rio Bravo has closed its Energia I fund on R$463 million (€185.8 million; $229.6 million).
Despite being backed by around 20 Brazilian pensions, the firm did not have to give up a seat on its investment committee to its pension LPs, managing director Russell Deakin told Private Equity International.
Deakin attributed the firm’s ability to do so to director of institutional investors Fabio Ohara Ishigami, who helped convince the pensions to take a role on the fund’s advisory board instead. Before joining Rio Bravo, Ishigami managed the portfolios of Brazilian pension funds as a director of the Complementary Pensions Secretariat at the Ministry of Social Security.
Many of the pensions that did commit to the fund were smaller, Deakin said, and realised that they would not have the staff or “bandwidth” required to actively participate on the fund’s investment committee. The advisory committee is responsible for ensuring that there are no conflict of interests with the GPs, in addition to making sure reporting and accounting processes are up to par.
Brazilian pension funds consider the long term cost of capital to be inflation plus 6 percent. Brazilian GPs, and Rio Bravo, pay a preferred return of inflation plus 6 percent, which currently is in excess of 12 percent nominal yield.
Fundraising was completed in two phases, Deakin said. In 2010, the firm attracted $180 million from eight Brazilian pensions that had issued a request for proposal for renewable energy investments. The firm followed this fundraise with a second marketing period for international investors, which took place over the last six to nine months.
“We had a very strong pipeline and we wanted to get that pipeline committed,” Deakin said.“We then kept the fund open for international investors.”
Overall, the fund managed to close with the backing of 30 Brazilian and international LPs, according to the release. One factor that may have contributed to the firm’s successful fundraising is its elevated preferred return.
“Brazilian pension funds consider the long term cost of capital to be inflation plus 6 percent. Brazilian GPs, and Rio Bravo, pay a preferred return of inflation plus 6 percent, which currently is in excess of 12 percent nominal yield,” Deakin said.
That compares favorably to typical hurdle rates, which are generally offered at around 7 percent or 8 percent on European or US funds.
Rio Bravo Energia I will invest in renewable energy projects, and has already participated in three deals, according to the release. These include a portfolio of 10 small hydro power plants and three clusters of wind farms.
Rio Bravo was founded in 2000 by Paulo Bilyk and Luis Claudio Garcia de Souza of Banco Pactual and Gustavo H B Franco, a former governor of the Central Bank of Brazil. The firm maintains offices in Sao Paulo, Rio de Janeiro and Recife, Brazil as well as Miami.