The Brazilian private equity landscape has undergone significant changes in the first quarter of 2023. The industry has experienced a decrease in investment due to investors' increased caution and aversion to risk, influenced by uncertainties in the global economy as well as domestic fiscal and political concerns (PE GP’s are closing their funds 20% to 30% lower than their initial target).
Despite the recent challenges, there are compelling reasons to maintain investments in Brazilian private equity. Although risk aversion is elevated, it has opened up opportunities for General Partners (GPs). Today's market conditions in Brazil provide GPs with the chance to take advantage of asset pricing and to invest in high-quality businesses at significantly reduced valuations, Limited Partners (LPs) may also take advantage as fund managers are eager for more capital to catch this investment window. These undervalued opportunities are expected to yield substantial returns as the economy recovers in the long term.
In the face of adversity, there is a silver lining. Despite reduced investment, several emerging investment areas have captured the attention of LPs in the Brazilian market. Sustainable investments focusing on environmental, social, and governance (ESG) factors have generated significant interest, particularly in industries such as renewable energy and sustainable agriculture.
Considering that LPs and GPs view private equity investments as part of their long-term strategy, the current risk conditions are largely connected to short-term perspectives. Therefore, the timing for new investments should be considered a great opportunity. Consequently, it remains important to closely monitor the Brazilian private equity market despite the prevailing difficulties.
Vitor Kawamura
Investor Relations PE | Infra, ABVCAP