Brazilian Private Equity Outlook (Spectra Investments)

Summary

• The number of active Private Equity firms in Brazil fell from 54 to 29 between 2012 and 2022.p.1
• Dry powder in Brazil decreased to BRL 17 billion (USD 3.3 billion) in 2022, down from BRL 27 billion (USD 7.7 billion) in 2016.p.1
• Pension funds accounted for 20% of capital raised between 2008 and 2016, but their share shrank to 3% following the Greenfield operation.p.3
• Active general partners doing deal-by-deal investments average 9 years of PE experience, first-fund GPs average 14 years, and GPs with multi-funds average 17 years.p.1
• PE-backed companies in Brazil maintained an annual revenue growth rate above 10% and EBITDA growth rate above 8%, even during economic crises.p.1
• The share of tech companies in Private Equity portfolios increased from 5% in 2010 to 15% in 2020.p.6

Key insights

1. Dry powder has reached its lowest point in ten years due to lower allocation by foreign investors and local pension funds alongside competition from VC and legal claims.p.1
2. Concentration in the PE sector increased, with the top three local managers controlling 49% of total PE capital in 2022.p.3
3. Fundraising success is strongly correlated with past performance outperforming industry vintage benchmarks in both IRR and TVPI.p.1
4. Fraud investigations like the Greenfield operation led to increased regulatory scrutiny by PREVIC and caused pension funds to avoid PE assets.p.2
5. Wealthy local families have emerged as the primary capital source for Brazilian PE funds, facing no currency conversion risks.p.3
6. Venture Capital returns overshadowed Private Equity returns in Brazil for most vintages post-2009.p.5
7. Only three active PE managers in 2022 were investing their first blind pool fund, showing low renewal in market participants.p.4
8. Low competition for deals and reduced entry multiples present strong prospective return potential for upcoming PE vintages.p.1