Private Equity in Brazil (Spectra Investments)

Summary

• The median net IRR for Brazilian buyout funds from 1993 to 2024 was 9% p.a. in local currency, with top-quartile funds returning over 21% p.a.p.4
• Revenue expansion accounts for approximately 80% of value generated for portfolio companies in Brazil.p.11
• In the United States, leverage and multiple expansion account for more than 60% of investment returns.p.12
• Managers with dedicated Value Creation teams achieved a 12% median IRR compared to 8% for those without.p.16

Key insights

1. Top-quartile Brazilian buyout funds deliver net dollar IRRs above 14% p.a., outperforming major local and international equity benchmarks.p.5
2. Over the 2015-2024 period, around 34% of funds outperformed the CDI, Ibovespa, and S&P global benchmarks simultaneously.p.8
3. Even during years with market volatility exceeding 31% p.a., top-quartile funds maintained returns well above historical averages.p.9
4. Unlike in mature markets like the US where leverage drives returns, revenue growth is the overwhelming driver of equity value creation in Brazil.p.12
5. Margin expansion distinguishes top-quartile performers, whereas lower-quartile deals capture value predominantly through revenue growth alone.p.13
6. Specialized sector managers yield higher median IRRs (10.5%) than generalists (8.3%), albeit with higher volatility.p.17
7. Investment in non-cyclical sectors like Food, Hospitality, and Education achieved the highest net IRRs.p.18
8. Frequent CEO turnarounds negatively impact performance, as having four or more CEOs during an investment leads to a average negative IRR of -3%.p.19