Investments in private equity funds are usually medium- and long-term commitments. Returns on private equity investments are generated by one or a combination of the following factors: (I) cash flow accumulated from operations; (ii) increased gains during the life cycle of the investment; and (iii) sale of a business by a higher price than the original purchase price. Divestment strategies used by private equity funds include initial public offerings and the sale of businesses to new investors.
Brazil‘s private equity sector has grown in recent years, partially leveraged by a previous period of private sector growth between 1994 and 2000. As a result of Brazil‘s prominence as an important market for private equity investments, many international funds which previously only sporadically invested in Brazil established offices here and carried out local fundings. This growth was influenced by the Brazilian stock market‘s positive performance, which enabled private equity firms to recycle their portfolios and expand their funds. In addition, the growing Brazilian middle class, added to the positive outlook for the country‘s exports, created opportunities for promoting investments in sectors related to consumption and infrastructure.
As a result, in 2015 the industry raised US$1.9 billion in private equity funds while the investments they made amounted to US$1.6 billion. Funding for private equity investments increased in other emerging markets.
Although Brazil has had a large inflow of capital into private equity investments in recent years, the Brazilian market remains under penetrated compared to other BRIC countries, and especially compared to the United States. According to EMPEA, private equity investment as a percentage of GDP in Brazil was 0.09% in 2015, while private equity investment in the United States and United Kingdom represented 1.41% and 1.95% of GDP in 2015, respectively.
Principal Investments involves proprietary capital investment activities in a wide range of financial instruments, including investments in merchant banking and real estate investments, mainly in Brazil, and investments in several financial instruments in the global market.
The Principal Investments area assumes several risks and allocates substantial resources to benefit from these exposures, leveraging and benefiting from information analysis, always seeking to take advantage of disparities observed in the value of assets in trading markets and macroeconomic, corporate and specific sectorial trends.
The financial instruments invested in through the Principal Investments area also involve arbitrage activities in a wide range of financial and stock instruments. The strategy of these products considers the realization of investments on a global basis through a diversified portfolio in different markets and in different categories of events, as well as being a product subject to rigorous analysis of regulatory, legal, fundamentalist and situational issues