Bolsonaro takes office: What next for Brazilian PE/VC?


Photo of Cate Ambrose courtesy of LAVCA

In the wake of Jair Bolsonaro’s election as Brazil’s next president, deal activity is exploding for the country’s private capital investors.

One São Paulo fund manager told LAVCA that there simply aren’t enough hours in the day to meet with all the business owners seeking capital, and added that he is seeing entry multiples in the high single digits, even for good quality assets.

Markets have reacted positively and the investor and business community in Brazil is euphoric following Bolsonaro’s electoral win, in expectation that the country will finally turn the page on a four-year crisis encompassing the Lava Jato corruption scandal, presidential impeachment, and economic recession.

New investments had been on hold in advance of the election as private capital managers waited out political uncertainty. A notable exception has been local and international investment in Brazilian tech startups, which saw historic funding rounds in 2018.

Bolsonaro has moved to reassure the investment community that he will prioritize market reforms, and his team is preparing to privatize state assets, opening up new opportunities for local and international investors with capital ready to deploy in the country.

One positive sign of investor confidence in Brazilian asset management was the highly successful fundraise completed by Patria Investimentos in the midst of the election cycle. The firm is set to close PE and infrastructure funds totaling over US$2.5b, with leading global institutional investors committing capital throughout 2018.

Investors that spoke with LAVCA were consistent in their frustration with international press coverage that has emphasized Bolsonaro’s extreme positions on social issues and suggestions that his rule will be autocratic or threaten Brazilian democracy. They consider that Bolsonaro’s election was a rejection of corruption and mismanagement under the PT, point out that his PSL party holds only 52 out of 513 seats in congress, and are confident that he will not find support from other parties for legislation on a conservative social agenda.

There are high hopes that incoming Economy Minister Paulo Guedes, a Chicago-trained economist who co-founded Banco Pactual, will implement much needed economic and fiscal reforms. And the appointment of Sergio Moro as Minister of Justice has given credence to the expectation that the country’s institutions will be respected and the judiciary will remain independent.

Despite positive sentiment for private capital investment in the short-term, among the long-term risks that Bolsonaro’s leadership poses for the country is to the environment. If he realizes his campaign promise to open up more of the Amazon to loggers and extractive industries, this may further exacerbate environmental degradation, making the need for ESG practices from investors even more imperative.

There is also expectation that international and Brazilian rights groups will be monitoring threats to human and civil rights. However, if Bolsonaro prioritizes economic reform and corruption reduction efforts, there is an opportunity for historic progress in Brazil’s investment and business climate.

Access more information about the environment for PE/VC in Brazil in the LAVCA Scorecard and receive regular updates on deal activity in the region via LAVCA’s newsletter.

Cate Ambrose is president and executive director of The Association for Private Capital in Latin America (LAVCA)