Who wants to be a Brazilianaire?

As the old world of finance comes to terms with the mistakes of the past, the future unfurls on the sun-drenched beaches of Brazil. Confidence abounds within the Brazilian private equity sector and the usual boom-market hangers on. Welcome to the world of the Brazilianaires.

There comes a time in every investment cycle where one asset class captures the zeitgeist. It becomes a shorthand for the market and a way of capturing everything that went on. What the railroad debentures were to the 19th century, the mutual funds and conglomerates were to the 1960s, the dot.com start-ups were to the 1990s and the hedge funds to the 2000s. What these asset classes all shared was the triumph of greed over fear; the unshakeable belief in the primacy of the market and the most ineffable ingredient of financial success: confidence.

As the world staggers out of the recent global financial crisis (European sovereigns notwithstanding), one asset class has captured the world's imagination. What Brazilian private equity represents is the sun-filled future of a new dawn.

It is, in many ways, a repudiation of everything that got us into the global financial crisis: it is about equity, not debt; it is about returns to growth, not leverage; it is about youth, vitality and demography, not pensions and aging and death taxes. It is exciting and forward thinking. Those who believe in it -- the Brazilianaires as they could be termed -- have a strong hold over the collective imagination. But is it actually real?

"With 53% of the Brazilian population now classified as being middle class, Asian investors can take advantage of a burgeoning consumer-driven growth story outside their home region," said Christian Gattiker, head of research for Bank Julius Baer. "The prudent macroeconomic policies of the out-going Lula administration promise longer term dividends in terms of growth and stability that make Brazil an important part of a diversified emerging-markets portfolio."

There is no doubt that Brazil is a macro success. The global financial crisis only delivered the country a glancing blow. Two quarters of contraction at the end of 2008 and start of 2009, and then a strong rebound. This macro success has attracted huge inflows of capital. In October 2009, the country became the first in the current cycle to impose controls on inward investment, so concerned was the government about the economy overheating.

The financial great and good are now extolling Brazil's general virtues and those of the private equity sector in particular. "The prospects for Brazil are better than at any time I have seen in the last 25 years," said David Rubenstein, co-founder and managing director of The Carlyle Group, speaking to FinanceAsia at the sidelines of the Brazilian Private Equity and Venture Capital Association (ABVCAP) annual conference in Rio de Janeiro. "There have been some false starts, but now Brazil will become one of the largest economies in the world and people want to put money to work in the country."

Carlyle is one of many global investors that are lining up to throw money at Brazil. According to the annual survey of global institutional investors carried out by the Emerging Market Private Equity Association (Empea) and Coller Capital, Brazil will be the world-leader in attracting new investors during the next one to two years.

"Brazil continues to lead the emerging markets in terms of attracting new investors, with almost one-in-five experienced emerging-market investor planning to begin investing in the country," said Erwin Roex, partner at Coller Capital in London.

Moreover, Brazil absolutely dominates investments into Latin America as a whole. Its primacy in the region is even more complete than that of China within Asia. According to the region-wide Latin American Venture Capital Association (Lavca), in 2009 Brazil accounted for 45% of the number of investments in the region and 62% of the value of those investments. In April, US private equity player Advent International closed the largest-ever Latin American private equity fund, LAPEF V, after raising funds of $1.65 billion. The majority of that is expected to go into Brazil.

Less scientifically, the presence of more than 400 investors, private equity firms, service providers (and the odd financial journalist) at the ABVCAP conference in Rio in April showed how much interest there is in the asset class.

"Ten years ago you could have held this conference in a closet," said Roger Leeds, chairman of the board at Empea. "Now look at it."

For more on Who wants to be a Brazilianaire? read the full June cover story in FinanceAsia magazine. SUBSCRIBE NOW ->
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