Abstract
Private equity (PE) stands out significantly in the world as one of the main development tools of the capital market in emerging economies and alternative sources of finance for companies. Particularly, the increase in fund value and continuous returns are objects of intense study in Brazil. The paper aims to find determinants to Brazilian private equity returns, regarding three relevant variables funds characteristics and GDP to a macroeconomic view. A sample of 1,112 PE funds registered at the Brazilian Securities and Exchange Commission (CVM) was used and analyzed by three main variables: period of establishment, equity size, and exclusivity as possible determinants of funds’ performance using multiple regression model and fourth variable GDP is applied as a descriptive variable. The results indicate that older funds had a return premium of 1.5% monthly over young funds, smaller funds had a return premium of 1.4% over larger funds, and exclusivity does not influence the funds’ performance. Thus, the paper provides a basis for the relevant factors that an investor should verify in Brazil’s private equity fund before allocating the resources.
Highlights
Latin America has been the most attractive emerging market for private equity investors since 2012
A sample of 1,112 Private equity (PE) funds registered at the Brazilian Securities and Exchange Commission (CVM) was used and analyzed by three main variables: period of establishment, equity size, and exclusivity as possible determinants of funds’ performance using multiple regression model and fourth variable Gross domestic product (GDP) is applied as a descriptive variable
In a survey with Brazilian PE/VC managers, it was accepted that funds with net equity of less than R$ 300 million are small funds, The analysis examines determinants to Brazilian funds between R$ 300 million and R$ 1 billion private equity returns, regarding three relevant are medium-sized, and funds with more than R$ 1 variables funds characteristics and a macroeco- billion are large ones
Summary
Latin America has been the most attractive emerging market for private equity investors since 2012. The Brazilian and Latin American markets held 46% of the expansion plans in emerging market investments, with 30% of respondents intending to expand their investments in Brazil (EMPEA, 2016). In the Brazilian case, due to political instability, reports of corruption and investigations in large companies and low economic performance brought down the country’s attractiveness. Private equity stands out significantly in Brazil as one of the main development tools of the capital market in emerging economies. An investment fund involves participation in companies with high potential growth and profitability, which can be done through acquisitions of shares or securities to increase capital in the medium- and long term (ABVCAP, 2012)
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