By Samantha Pearson in São Paulo
Private equity and venture capital groups have slashed fundraising for Brazil by more than 70 per cent over the past two years as the country’s gloomier economic outlook drives away larger companies such as London-based 3i.
About $2.3bn was raised last year to invest in Brazil, down from $3.6bn in 2012 and $8.1bn in 2011, according to data released on Thursday by the Latin American Private Equity and Venture Capital Association (Lavca).
Brazil’s share of fundraising in the region has also slumped as investors look to Mexico, Colombia and Peru for better returns. Last year, Brazil accounted for 42 per cent of the $5.5bn raised for investments in Latin America, compared with 65 per cent in 2012 and 79 per cent in 2011.
“In the last 18 to 24 months we have seen a significant increase in the amount of investor interest in opportunities in Latin America ex-Brazil,” said Cate Ambrose, president of Lavca.
After luring investors with 7.5 per cent growth in 2010, Brazil’s consumption-led economy has quickly run out of steam – central bank data last week indicated the country may have entered a technical recession in the fourth quarter of last year.
Brazil is also one of the emerging markets that have most suffered from moves by the US Federal Reserve to taper its bond-buying programme.
Last month, 3i announced it had dropped plans for a substantial investment fund in Brazil, blaming the country’s deteriorating macroeconomic scenario and uncertainty ahead of presidential elections in October. The value of 3i’s two investments in the country has fallen by more than 20 per cent as a result of the sharp depreciation of Brazil’s currency, it said.
Seven other large firms, including Brazil’s Gávea and US-based Advent and Carlyle, have also not come back to the market since raising $11bn for regional and Brazilian funds in 2010 and 2011.
However, Ms Ambrose said that it was too early to assume that some of these firms would not raise funds again this year and help reverse the region’s recent trend. Interest for mid-market funds in Brazil also remains strong and the size of the domestic economy and the country’s regulatory environment means it is still one of the easiest places to invest, she said.
Private equity and venture capital firms invested about $6bn in the country last year, up from $5.7bn in 2012.
“Brazil is simply 5-10 years ahead of the rest of Latin America in terms of the development of the private equity market,” said Ms Ambrose. “It is easier to take a controlling stake in Brazil than in Mexico, Peru or Colombia where much of the business landscape is populated by family businesses where the attitude is: I would rather see my company go bankrupt than sell out to private equity.”