Private Equity and Venture Capital in Brazil - BVCA admin

In partnership with
Private Equity and
Venture Capital in Brazil
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

International
Series Brazil
Opening Remarks
Mark Florman
Chief Executive, BVCA and Chairman of the Forum
In partnership with

In partnership with
In association with Offshore jurisdiction sponsor
Supporting sponsor
In partnership with

International
Series Brazil
Welcome Remarks
Sidney Chameh
President, Brazilian Private Equity and Venture
Capital Association
In partnership with

Sidney Chameh, Chairman, ABVCAP
presidente@abvcap.com.br
November 2011
London & Madrid
5

Agenda
• Brazil: A Macro Overview
• Private Equity and Venture Capital in Brazil
• ABVCAP
Source: IBGE, IPEA.
6

A Brief Macro Overview
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
15.0%
13.0%
11.0%
9.0%
7.0%
5.0%
3.0%
1.0%
-1.0%
-3.0%
-5.0%
16.4%
13.0%
1948
15.3%
1950
1952
Post-war
1954
1956
1958
1960
1962
1964
1966
Total Investments in Brazil as a % of GDP
Private
16.1% 15.9% 16.4%
12.6% 13.5% 13.2%
13.4%
17.4%
14.5%
Public
19.1%
15.5%
3.4% 2.7% 2.6% 2.7% 3.0% 2.9% 3.6% 4.3%
Brazil GDP Evolution (YoY Change %)
Economic miracle
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E
12.6%
1968
1970
Sources (top left to bottom right): Instituto Brasileiro de Geografia e Estatística (IBGE) – 2010; Ministério da Fazenda; Fundação Getulio Vargas (FGV).
1972
1974
1976
1978
1980
1982
Lost decade
“Chicken hops”
1984
1986
1988
1990
1992
1994
Middle & Lower Income Class as a % of Population in Brazil
1996
1998
Real Plan
Total Middle Class (C Class) Lower Income Level (E Class)
16.9%
18.4%
20.4%
21.6%
23.0%
24.1%
2000
29% 30% 28% 24% 23% 21%
2002
2004
2006
18% 18%
42% 42% 44% 46% 48% 50% 52% 53%
2002 2003 2004 2005 2006 2007 2008 2009
2008
2010

Challenges
Infrastructure
Education
Fiscal deficit
Social security
Labour laws
Tax system
Red tape
In spite of Brazil s favourable
position in the global scenario, there
are still several deficiencies that
prevent the economy from
expanding at a faster pace.
8

Opportunities
Growth: Brazil is now the 7 th largest
economy in the world, 2014/5 to become
the fifth in the global ranking;
Consolidated Democracy: political
stability with +15 years of low inflation
and economic growth.
Emerging middle class: Over the past
decade, +35 million Brazilians have
entered the middle class.
Maturing capital markets: BMF&Bovespa
is now the 4th largest listed exchange in
the world. Exit opportunities for PE.
Infrastructure: Great demand for
infrastructure will pull in new investments
to almost all sectors. Estimates show that
investments in infrastructure will jump
from US$ 216 bi to US$ 1 tri by 2020.
9

PE/VC in Brazil Timeline
1994-1998
Real Plan
CVM 209
First cycle of
PE/VC funds
begins
PE/VC fund
investments
during the
privatization
period
1999-2002
Investments
reduced
due to currency
devaluation,
energy crises and
pre-electoral
insecurity.
ABVCAP is founded
in 2000
2003-08
CVM 391
New Bovespa
Market
BRIC thesis
Acceleration of
IPO process
First PE/VC
fund cycle
ends
2009-Today
New PE/VC funds
cycle begins
More global GP
players
Consolidation of
LP s participation
Increasing fund
commitment
through FINEP s
Inovar Program
10

Brazil PE/VC in Numbers
Fundraising and Investment (US$m)
6000
5000
4000
3000
2000
1000
270 321 480 474
261 230
120 158
0
Source: EMPEA.
2098
1342
5285
2510
3589
3020
989 1078
401
4604
3000
977
2002 2003 2004 2005 2006 2007 2008 2009 2010 1H
2011
Fundraising
Investment
INDUSTRY SNAPSHOT
+ 90 Private Equity / Venture
Capital firms
Diversified base of investors with
top 20 pension funds,
Brazilian Development Bank,
Innovation agency, HNW
+500 portfolio companies
currently managed and from 2005
to 2009: 490 new / follow-on
investments
41 backed IPO’s (approx R$
25.5 Billion) from 2004-2010
11

Business Environment
Source: LAVCA.
12

Private Equity Funds (FIPs)
Most usual investment vehicle in
Brazil.
Closed-end investment funds
(condominium) with the purpose of
investing in Brazilian listed or non listed
companies or even in other funds regulated
by CVM (Brazilian Security Commission);
Key driver: Beneficial tax treatment in
Brazil
Requirements for tax exemption:
• Comply with all CVM rules:
• Ownership – Investors (along with related
parties) must own less than 40% of FIP quotas.
• Tax Haven – None of the investors should be in
a tax haven jurisdiction.
Source: ABVCAP.
Seller
Target
LLC 1 LLC 2 LLC 3
Equity Equity
FIP
Hold Co
S/A
Equity
Debt
Equity
Brazil
13
US

ABVCAP
The Brazilian PE&VC Association was founded in 2000 to promote and
develop long-term investments in Brazil.
More than 170 members, (90 Private Equity / Venture Capital firms
including local and international managers), major institutional LP and
service providers.
Mutual Cooperation Agreements: ABVCAP has strong partnerships with
sister-associations, expanding.
Partnerships with Key Stakeholders: ABVCAP works closely with important
global, regional and local entities to promote long-term investments in the
Brazil Some of these partnerships include:
• ApexBrasil, IDB (MIF), ABDI, Finep and BMF&Bovespa.
14

Priorities
Advocacy &
Institutional
Positioning
Regulation &
Development
Pillars for Development
Data Base &
Knowledgement
Compliance
and Best
Practices
Resources Coordenation
Brazilian PE industry strengthening
ABVCAP
Integration
and
Sustentability
15

ABVCAP s Executive Committees
Institutional Investors Committee: The IIC aims to understand and bring
the needs of these investors and those of other private equity and venture
capital industry players.
Regulatory Committee: Review and improve the industry regulation. •
Implement the auto-regulation code of conduct for the private equity and
venture capital industry; Reduce administrative costs and increase the
efficiency for fund formation.
Entrepreneurship, Innovation and Seed Capital Committee: Foment the
capitalization of entrepreneurial initiatives that are aligned with corporate
governance practices and promote synergy with the venture capital
segment of the industry.
Governance and Finance Committee: The Governance and Finance
Committee aims to assist and guide the Board of Directors in their
statutory responsibilities regarding ABVCAP’s best corporate governance
practices and administrative and financial procedures.
Infrastructure Committee: Increase investment to the infrastructure
sector.
16

ABVCAP Data
Benefits:
Data accuracy
Transparency
Enable quantification and monitoring
within the industry
Promote credibility and standardization
of practices and processes
Activity and performance to be measured
Better “sell” of the industry in terms of
job creation, taxes and wealth
17

ABVCAP: New Online Directory
In 2010, we published the first guide to the leading players in Brazil s
PE/VC. In 2011, we will enhance this service and launch the first ever,
interactive, online platform to provide users with in-depth details about
the Brazilian industry.
Print version
New Online Version
18

Thank you!
Sidney Chameh
Chairman, ABVCAP
presidente@abvcap.com.br
www.abvcap.com.br
19

In partnership with
Private Equity and
Venture Capital in Brazil
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

International
Series Brazil
Secular Trends and
Foreign Shocks
Assessing their impact on
investments in Brazil
Luis Fernando Lopes
CEO Patria Investments UK, Patria Investmentos
In partnership with

S T R I C T L Y P R I V A T E A N D C O N F I D E N T I A L
22549-d-092308
“Secular trends and foreign shocks: assessing
their impact on investments in Brazil”
November 2011

22549-d-092308
Important Notice
Any recipient of this presentation (the “Presentation”) must: (a) Limit the recipients of copies of the presentation or summaries of its content to a limited number of colleagues at
his or her firm solely on a “need to know” basis; (b) Under no circumstances give the Presentation, copies thereof, or summaries of its contents, nor provide any information
contained in it, to any person outside one’s firm; (c) Require colleagues who are in receipt of the Presentation or summaries thereof to comply with the requests set forth in the
preceding clauses (a) and (b).
The following Presentation is being provided to certain selected institutional and sophisticated investors in one-on-one presentations on a confidential basis for informational
and discussion purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase an interest in any current or future investment vehicle sponsored by
Patria Investimentos S.A. or its affiliates, including its predecessor Banco Patrimonio de Investimento S.A. and its activities, where applicable (“Patria”). Any such offer or
solicitation shall be made only pursuant to a confidential private placement memorandum for the relevant fund which supersedes and qualifies in its entirety all the information
set forth in this Presentation. This Presentation does not constitute a part of the Memorandum and recipients should not construe the contents of this Presentation as financial,
legal, accounting, tax or investment advice.
In considering the performance information contained herein, recipients should bear in mind that past performance is not necessarily indicative of future results, and there can
be no assurance unrealized return projections will be met. Unless otherwise indicated, all internal rates of return and multiples of invested capital are presented on a “gross”
basis (i.e., they do not reflect management fees, “carried interest,” taxes, transactions costs and other expenses borne by investors, which reduce returns and, in the aggregate,
may be substantial). Any such Gross MOIs used herein represent the total value (realized or unrealized) of an investor’s investment as a multiple of invested capital prior to the
payment of any expenses. “Gross IRR” and “Net IRR” shall mean an aggregate, annual, compound, gross or net, as applicable, internal rate of return on investments,
calculated based on daily investment inflows and outflows, with the returns reported on an annual basis. Gross leveraged IRRs present the gross annual internal rate of return
after the effects of debt financing (at either the fund or asset level) is taken into consideration. Net IRRs are after all management fees, carried interest, transaction costs and
other expenses (other than taxes borne or to be borne by investors, and are generally substantially lower. Net leveraged IRRs present the net annual internal rate of return to
the investor after the effects of debt financing (at either the fund or property level) is taken into consideration. A hypothetical illustration of the effect of carried interest,
transactions costs and other expenses on “Gross IRRs” and “Gross MOIs” is available upon request. Projections and/or future unrealized values of currently unrealized
investments will depend on, among other factors, future operating results, the value of the assets and market and other conditions at the time of disposition, legal and
contractual restrictions on transfer that may limit liquidity, any related transaction costs and the timing and manner of sale, all of which may differ from the assumptions and
circumstances on which current unrealized valuations are based and many of which are difficult to predict and are beyond Patria’s control. Furthermore, the global economy,
including in Brazil, has recently experienced periods of significant market volatility. If these unrealized investments were to be liquidated under current market conditions, the
values obtained could be, with respect to such investments, materially lower than those indicated in the projected returns shown. Accordingly, the actual realized returns on
unrealized investments may differ materially from the returns indicated herein. Moreover, certain information herein is presented in U.S. dollars, however Patria’s investments
generally are denominated in Reais and hence a portion of the value of unrealized investments will depend on the relative strength or weakness of the U.S. dollar to the Real.
Unrealized returns are not to be relied upon as facts and there can be no assurance that such results will be achieved.
Certain of the past performance information, selected examples and case studies presented herein may not be representative of all transactions of a given type or of Patria’s
investments generally. The investment strategy, size and type of investments with respect to which such past performance information relates may differ in one or more respects
from the investment strategy generally employed by Patria’s Private Equity Group and the results of certain past performance set forth herein, may be attributable to the
activities of investment professionals that do not participate in Patria’s Private Equity Group.
Certain information contained in this Presentation constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,”
“will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable
terminology. Due to various risks and uncertainties, actual events or results or the actual performance of any fund or investment discussed herein may differ materially from
those reflected or contemplated in such forward-looking statements. Any projections, market outlooks or estimates in this Presentation are forward-looking statements and are
based upon certain assumptions. Other events which were not taken into account may occur and may significantly affect any fund or investment discussed herein. Any
outlooks and assumptions should not be construed to be indicative of the actual events which will occur.
Certain information contained herein (including targets, forward-looking statements, economic and market information and portfolio company data) has been obtained from
published sources and/or prepared by third parties (including portfolio companies) and in certain cases has not been updated through the date hereof. While such sources
are believed to be reliable for the purpose used herein, none of Patria or any of its directors, officers, employees, partners, members, shareholders or affiliates, or any other
person assumes any responsibility for the accuracy or completeness of such information.
Patria does not have any obligation to update the information contained herein.
23

22549-d-092308
Three fundamental issues that drive investment in Brazil
I. The widening growth gap between emerging and developed economies
II. Brazil: domestic market oriented but with an edge on commodities
III. Challenges and opportunities:
An underleveraged economy
Subpar investment spending
Highly volatile asset prices
IV. Foreign environment: foe or friend?
V. Historical data and forecasts
24

I. The widening growth gap between emerging and
developed economies
There was a secular change in the world landscape
before the financial crash of 2007-08.
The share of emerging economies in global GDP was
rising steadily owing to their much higher growth pace.
Recent evidence suggests that growth differential in
favor of emerging economies has widened further.
Participation of emerging markets in global investors’
portfolio is a small fraction of their share in global growth.
Capital flows and financial wealth are increasingly
gravitating around emerging economies.
22549-d-092308
Emerging markets: net capital flows and reserves
800
600
400
200
0
US$ billion per year US$ billion per year
-200
1980 1984 1988 1992 1996 2000 2004 2008
Net capital flows (left)
Change in international reserves (right)
Source: International Financial Statistics (FMI).
1,500
1,200
900
600
300
0
-300
10
8
6
4
2
0
-2
Real GDP growth
Real GDP growth per year; % Forecast
-4
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Advanced economies Emerging markets
Source: International Financial Statistics (FMI).
Participation in global GDP (adjusted for PPP)
Share
Forecast
100%
80%
60%
40%
20%
0%
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Advanced economies Emerging markets
Source: International Financial Statistics (FMI).
25

II. Brazil: domestic market oriented but with an edge on
commodities
22549-d-092308
Continental dimensions: 8.5 million km 2 ; GDP of R$3.7
trillion (US$2.1 trillion); 191 million inhabitants with median
age of 29 years; urbanization rate = 87%.
Pattern of aggregate expenditure reveals an inwardoriented
economy (data as of 2010):
Household consumption = 61% of GDP
Government consumption = 21%
Gross fixed capital formation = 19%
Exports goods & services = 11%
Imports goods & services = -12%
Net = -1%
Local drivers set the pace of economic activity over the
long haul and foreign factors generate fluctuations
around this primary trend.
12
10
8
6
4
2
0
-2
-4
GDP x domestic absorption x foreign demand
Accum. 12-m chg. % Accum. 12-m chg. %
Domestic absorption avg. 2000-09: 97% of GDP growth
Foreign demand avg. 2000-09: 3% of GDP growth
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Contribution of foreign demand Contribution of domestic absorption GDP
Source: IBGE and Pátria Investimentos.
12
10
8
6
4
2
0
-2
-4
Exports goods & services to GDP (2010)
Brazil
Advanced countries
World
Emerging
Euro area
New Ind. Asia
Source: International Financial Statistics (IMF).
90%
70%
50%
30%
0 20 40 60 80 100
% of GDP
GDP breakdown by expenditure up to 2010
Share in GDP
3.9% 3.6% 2.9% 1.5% 0.2%
17.1% 16.2% 16.8% 18.3% 20.7% 16.5% 19.2%
19.2% 19.9% 20.0% 20.3% 20.2%
21.8% 21.2%
59.8% 60.3% 60.3% 59.9% 58.9% 61.7% 60.6%
10%
-0.1%
-10% 2004 2005 2006 2007 2008 2009
-1.0%
2010
Household consumption Government consumption
GFKF** Net exports
Note (*): Gross Fixed capital Formation = investment spending.
Source: IBGE.
26

II. Brazil: domestic market oriented but with an edge on
commodities
Brazil is a very diversified economy with prominence of
activities centered on the domestic market and the
edge on commodities is a plus to this dynamic.
Fundamental trend: decrease in income inequality and
absolute poverty since stabilization in the mid-90’s
Since 1993, 60 million left poverty and were incorporated
into middle class ranks; 66% of this improvement derives
from market factors.
Brazil has become a medium class country, 55% of
population, where households report income up to
US$33,000 per year.
22549-d-092308
Per capita income gain by social bracket 2001-09
80
Accumulated change %
70 69
60
50
40
30
61
56
51
46
43
35
29
20
10
21
13
0
E2 E1 D2 D1 C2 C1 B2 B1 A2 A1
Very poor/poor Middle class Wealthy
Source: Source: Neri, M. (2010) - “The New Middle Class in Brazil – The
Bright Side of the Poor”, FGV-CPS, Rio de Janeiro.
Smaller x Greater inequality
Income inequality and absolute poverty in Brazil
100
80
60
40
20
0
0.62
0.60
0.58
0.56
0.54
0.52
% of total population
6 8 8 8 9 10 10 11 12 12
31
63
Gini index % of population
0
1995 1997 1999 2002 2004 2006 2008 2010*
Inequality (left) Poverty (right)
Note(*): preliminary.
Source: Instituto de Pesquisa Econômica e Aplicada (IPEA).
Evolution of social classes in Brazil
38 40 42 45 47 49 50
54 55
55 53 50 46 43 40 39 34 33
1993 2003 2004 2005 2006 2007 2008 2009 2010 2011
Very Poor/Poor: up to US$640/month Middle Class: US$640 to 2.750/month
Wealthy: More than US$2.750/month
Source: Neri, M.C. (2011) – “Os Emergentes dos Emergentes: Reflexões Globais e
Ações Locais para a Nova Classe Média Brasileira”, FGV-IBRE, CPS, Rio de Janeiro.
18
15
12
9
6
3
27

II. Brazil: domestic market oriented but with an edge on
commodities
Brazil is a resource rich country, with a competitive edge
in the production of several commodities.
Grains, minerals and animal proteins are a dependable
source of export receipts and hard currency inflows.
More importantly, abundant commodities provide a low
cost supply of raw materials for the local industry.
Commodity dominate Brazilian stock market indices
( 40%) but services account for over 60% of GDP.
22549-d-092308
1. Saudi Arabia
2. Venezuela
3. Iran
4. Iraq
5. Kuwait
6. UAE
Brazil (Pre-Salt)
7. Russia
8. Libya
9. Kazakhstan
10. Nigeria
11. Canada
12. United States
13. Qatar
14. China
15. Brazil
16. Angola
17. Algeria
18. Mexico
19. Azerbaijan
20. Norway
World’s proven oil reserves (2010)
Billion boe
0 50 100 150 200 250 300
Source: BP Statistical Review of World Energy June 2011.
Brazil’s production of agricultural commodities (2010-11)
50
40
30
20
10
0
50
40
30
20
10
0
% of world production
World major exporters of animal protein (2010)
% of world exports
Source: U.S.D.A.
40 38
36 34
20
13
33
Coffee Orange Ethanol Soybeans Sugar
Source: U.S.D.A.
Brazil U.S. E.U. Australia
11
29
4
Poultry meat Beef
0
24
18
28

9
6
3
0
-3
-6
-9
-12
-15
22549-d-092308
III. Challenges and opportunities
Brazil entered the global recession very late and
bounced back quickly.
Activity expanded until 1H11 and is now slowing down
owing mostly to previous monetary and credit tightening.
There are structural deficiencies that play an important
role in Brazil’s business cycles over the long haul:
lack of credit and industry fragmentation
modest investment spending
high asset price volatility
Real wage gains x unemployment in Brazil
% 3-m/3-m oya
-18
2004 2005 2006 2007 2008 2009 2010 2011
Source: IBGE.
% of labor force
Avg. real earnings (left) Unemployment (right)
14
13
12
11
10
9
8
7
6
5
25
20
15
10
5
0
% 3-m/3-m oya % 3-m/3-m oya
-5
2004 2005 2006 2007 2008 2009 2010 2011
Source: IBGE.
Real retail sales and credit in Brazil
Broad retail Credit outstading
UPC & business confidence in the Brazilian industry
90
85
80
75
% of total Index
UPC
Last = 83.5%
Máx = 86.7%
Avg. 2005-08 = 84.2%
70
2004 2005 2006 2007 2008 2009 2010 2011
Plant capacity (left) Business confidence (right)
Note(*): UPC stands for utilization of plant capacity.
Source: Fundação Getulio Vargas.
25
20
15
10
5
0
90
80
70
60
50
-5
130
120
110
100
29

III. Challenges and opportunities:
an underleveraged economy
Credit to GDP ratio in Brazil is 48%, well below the level
portrayed by middle-income countries (at around 60%).
Long term financing is insufficient; most medium and
small firms have very inefficient capital structures.
Opportunity: scarcity of capital implies very high IRRs for
investment without leveraging.
Opportunity: inadequate capital structures entail industry
fragmentation and fertile ground for consolidation.
Opportunity: elementary financial instruments (e.g.
mortgage) are still in their infancy.
22549-d-092308
Outstanding credit to GDP (2009)
Source: Bradesco Economic letter dated 5-Apr-2011.
70
60
50
40
30
20
10
Volume of credit and interest rates charged
% per year
0
2004 2005 2006 2007 2008 2009 2010 2011
Source: Banco Central do Brasil.
Avg. rate charged on firms
Avg. rate charged on individuals
Average size of 50 largest firms (selected indicators)
Total Assets to GDP
(%)
Capital to GDP (%)
Developed economies 0.979 0.375
Developing ex-Latin
America
0.972 0.466
Latin America 0.472 0.269
Brazil 0.414 0.188
Source: Herrera A. M. & Lora, E. (2005): “Why So Small? Explaining the
Size of Firms in Latin America”, Inter-american Development Bank.
30

III. Challenges and opportunities:
subpar investment spending
In spite of a very successful macroeconomic story, Brazil
still reports modest investment spending.
Any upbeat tone of the economy rapidly raises utilization
of capacity to maximum and triggers inflation pressures.
Opportunity: attractive greenfield and brownfield
investment projects are plentiful.
Opportunity: tight fiscal policy needed to tackle inflation
restrains federal spending.
22549-d-092308
The government needs to attract private CAPEX to complement
its investment programs and will have to adopt a more market
friendly approach towards local and foreign investors
U.S.
Australia
Singapore
Russia
Greece
Chile
China
Brazil
Electric power consumption
kWh per capita per year
Norway
0 5,000 10,000 15,000 20,000 25,000
Source: World Bank Development Report 2010.
Gross fixed capital formation (investment) compared
35
30
25
20
15
10
5
% to GDP
0
1995 1997 1999 2001 2003 2005 2007 2009
Brazil World Emerging Markets
Note(*): estimate.
Source: International Financial Statistics (IMF).
“Doing Business” ranking of competitiveness (1 to 183)
1. Singapore
2. Hong Kong
3. New Zealand
4. U.S.
91. China
120. Russia
126. Brazil
132. India
Source: World Bank.
31

III. Challenges and opportunities:
highly volatile asset prices
Globalization caused foreign capital flows to gradually
command the prices of liquid Brazilian assets.
The prominence of short term, unstable portfolio
investment entails high volatility of asset prices.
Opportunity: asset volatility is much higher than it should
be as long as economic fundamentals are concerned
Opportunity: anti-cyclical behavior pays off handsomely
60
55
50
45
40
35
30
22549-d-092308
Bullish tone divestment + capital raising
Sour sentiment capital deployment
2000
Net fiscal debt and external indebtedness
% of GDP % of GDP
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Public debt (left) Foreign debt (right)
Source: Banco Central do Brasil.
2011
35
30
25
20
15
10
5
0
-5
90
75
60
45
30
15
0
-15
Brazil: net FDI and foreign portfolio investment
2000
US$ Billion 12-m US$ Billion 12-m
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Short term portfolio Long term FDI
Source: Banco Central do Brasil.
4.00
3.50
3.00
2.50
2.00
1.50
1.00
Source: Banco Central do Brasil and Patria Investimentos.
2011
Nominal exchange rate x currency volatility
2000
R$ per US$ % change
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Avg.FX 00Q1 = R$1.77 per US$ Avg.FX 11Q3 = R$1.64 per US$
Nominal FX (left) FX changes (right)
90
75
60
45
30
15
0
-15
20
15
10
5
0
-5
-10
-15
-20
32

22549-d-092308
IV. Foreign environment: foe or friend?
Slower global growth negatively affects Brazil through two
main channels:
I. Trade balance (relevance = low)
Gross exports account for a bit more than 10% of GDP
Terms of trade for Brazil have been improving and surging
FDI more than compensates for less vibrant exports
II. Investment spending (relevance = moderate)
Brazil’s aggregated CAPEX is quite volatile
Adverse foreign shocks dent business confidence, leading
to reduced investment spending and slower job creation
There is a third channel of transmission of foreign shocks
that may be activated in the case of global meltdown:
III. Consumer purchasing power (relevance = high)
The unleveraged expansion of Brazil’s domestic
consumption market highlights the importance of real
disposable income
Adverse foreign shocks significantly affect activity if they
erode real disposable income over the longer term
Chain reaction: sharp currency depreciation higher
inflation lower disposable income weaker growth
Most likely scenario: global jitters entail deceleration of
Brazil’s real GDP growth to 3-4% in 2011-12.
90
75
60
45
30
15
0
Brazil: net FDI and terms of trade
Source: Banco Central do Brasil.
28
24
20
16
12
8
4
0
-4
-8
-12
2000
2000
US$ Billion 12-m
2001
Investment spending x MSCI stock index
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
% 12-m change % 12-m change
2006
2007
2007
2008
2008
2009
2010
Total CAPEX (left) MSCI Brazil (right)
US$ Billion 12-m
2009
Source: Banco Central do Brasil and Patria Investimentos.
2010
Long term FDI (left) Trade balance (right)
2011
2011
100
75
50
25
0
0
-25
-50
60
50
40
30
20
10
-10
33

22549-d-092308
V. Historical data and forecasts
oya = over-year-ago
aop = average-of-period
eop = end-of-period
1995-2005
average
2006 2007 2008 2009 2010 2011 2012
World real growth %oya 3.6 5.0 4.9 2.8 -0.6 4.9 4.0 3.7 4.5
Advanced economies real growth %oya 2.7 3.0 2.7 0.2 -3.4 3.0 2.0 1.8 2.4
Emerging markets real growth %oya 5.1 8.2 8.8 6.1 2.7 7.3 6.4 6.1 6.7
Sources: International Monetary Fund, IBGE, Banco Central do Brasil and Patria Investimentos (forecasts)
2013-17
average
BRAZIL
Nominal GDP R$ billion 2,369 2,661 3,005 3,143 3,578 3,938 4,290
Nominal GDP US$ billion 1,072 1,314 1,639 1,579 2,034 2,394 2,510
Real GDP %oya 2.6 4.0 6.1 5.2 -0.6 7.5 3.4 3.0 4.4
Household consumption %oya 2.4 5.2 6.1 5.7 4.2 7.0 5.0 4.5 4.8
Government outlays %oya 1.9 2.5 5.1 3.1 3.9 3.3 3.5 3.2 3.3
Investment spending %oya 1.8 9.8 13.8 13.6 -10.3 21.8 9.0 8.1 8.9
Exports of good & services %oya 8.0 5.0 6.2 0.6 -10.2 11.5 8.0 7.2 6.7
Imports of good & services %oya 5.3 18.5 19.9 15.4 -11.5 36.2 25.0 22.5 7.3
Consumer price index (IPCA) %Dec/Dec 7.4 3.1 4.5 5.9 4.3 5.9 6.5 5.7 4.5
General price index (IGP-M) %Dec/Dec 10.7 3.8 7.8 9.8 -1.7 11.3 5.9 5.5 4.9
Primary fiscal balance % of GDP 2.5 3.9 4.0 4.1 1.4 2.8 3.1 2.5 2.7
Nominal fiscal balance % of GDP -5.7 -3.0 -2.3 -1.5 -3.2 -2.6 -2.9 -3.1 -0.9
Net public debt % of GDP 45.8 47.3 45.5 38.5 42.8 40.2 39.0 40.5 41.6
Short term rate (CDI) % p.a. aop 21.9 15.1 12.0 12.5 9.9 10.0 11.7 10.5 9.0
Real interest rate (Selic/IPCA) % p.a. aop 13.6 11.6 7.2 6.3 5.4 3.9 4.9 4.5 4.3
Trade balance US$ billion 10 46 40 25 25 20 31 22
Exports US$ billion 66 138 161 198 153 202 251 264
Imports US$ billion 56 91 121 173 128 182 220 242
Current account US$ billion -14 14 2 -28 -24 -48 -47 -61
Current account % of GDP -2.0 1.3 0.1 -1.7 -1.5 -2.3 -2.0 -2.4 -1.7
Foreign direct investment US$ billion 20 19 35 45 26 48 70 50
Gross international reserves US$ billion eop 46 86 180 207 239 288 388 411
Exchange rate R$ per US$ aop 2.06 2.18 1.93 1.83 1.99 1.76 1.64 1.71
34

In partnership with
Private Equity and
Venture Capital in Brazil
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

International
Series Brazil
Advantage and
Challenges of a
Favourite
As one of the most attractive
destinations for PE/VC
investments, how has the local
scenario changed?
How has the entrance of new
investors impacted on the
competition of deals,
valuations, deal terms and coinvestments?
In partnership with

International
Series Brazil
Advantage and
Challenges of a
Favourite
Paulo Sérgio Gobbo Marins (Moderator)
Head of Sales Brazil – Securities and Fund Services, Citi
Eduardo Oliveira
Partner, Grupo Stratus
Gustavo Peixoto
Investment Manager Private Equity Team, Grupo Santander
Bob Stefanowski
Chairman and Managing Partner, 3i Asia and the Americas
In partnership with

International
Series Brazil
Private Equity and
Venture Capital
Brazil Atlas
Christiane Nascimento
ABVCA
In partnership with

In partnership with
Coffee and
Networking
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

In partnership with
Private Equity and
Venture Capital in Brazil
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

International
Series Brazil
The Regulatory
Landscape for
Private Equity in
Brazil
How to tap opportunities via
international or local
structures
In partnership with

International
Series Brazil
The Regulatory
Landscape for
Private Equity in
Brazil
Tim Hames (Moderator)
Head of Public Affairs, Communications and Campaigns, BVCA
Martin Pose
Partner TozziniFreire
Peter Furci
Partner, Debevoise & Plimpton LLP
In partnership with

THE ROLE OF BRAZILIAN LEGISLATION
IN PE & VC DEALS
November 2011
Martin Miralles Pose
mpose@tozzinifreire.com.br

Brazilian Legal Framework – 180 yrs
Consolidated Legal Environment
FIRST FEDERAL
CONSTITUTION
1824
BANKRUPTCY
LAW
1945 / 2005
TAX
CODE
1966
LAST FEDERAL
CONSTITUTION
1988
COMMERCIAL
CODE
1850
FOREIGN
INVESTMENT
LAW
1962
MINING
CODE
1967
CONSUMERS
CODE
1990
Informações Confidenciais de Propriedade de TozziniFreire Advogados
CIVIL
CODE
1916 / 2003
BANKING
LAW
1964
IP
LAWS
1971 / 1996
VENTURE
CAPITAL
1994
CORPORATION
LAW
1940 / 1976
CAPITAL
MARKETS LAW
1965
SECURITIES
LAW
1976
ARBITRATION
LAW
1996
LABOR LAWS
1943
FOREST
CODE
1965
ENVIRONMENTAL
LAW
1981
PRIVATE
EQUITY
2003

Foreign Investment
▪ EQUAL TREATMENT TO FOREIGN AND NATIONAL CAPITAL
▪ FREE INFLOW/OUTFLOW OF FUNDS – RULES OF 1962
▪ CONSOLIDATED BANKING SYSTEM REGULATION SINCE 1964
▪ REGULATED VEHICLES
▪ SPECIFIC PERFORMANCE FOR SHAREHOLDERS AGREEMENT
▪ ENFORCEABILITY OF FOREIGN AND BRAZILIAN ARBITRATION
AWARDS SINCE 1996
Informações Confidenciais de Propriedade de TozziniFreire Advogados

Consolidated Capital Markets Regulation -
1965
STOCK
EXCHANGE
ASSET
MANAGERS
BROKERS
CUSTODIANS
Informações Confidenciais de Propriedade de TozziniFreire Advogados
CVM
AUDITORS
DEPOSITARIES
OTC
FUNDS
DEALERS

Regulated - Vehicles
Foreign Country
Brazil
Limited
Liability
Company
Informações Confidenciais de Propriedade de TozziniFreire Advogados
Non Listed
Corporation
Foreign
Investor
PE/VC
Fund
Listed
Corporation

Corporate Governance
▪ CORPORATION LAW
• Tag along for voting
shareholders (80%)
• Reduction of disproportion
between voting and non-
voting
• Minority shareholder on the
board
Informações Confidenciais de Propriedade de TozziniFreire Advogados
▪ NOVO MERCADO
• Only voting shares
• Minimum free float of 25%
• Same premium paid to
controlling stake for all
shares
• 20% of independent
directors
• Compliance with IFRS
• Mandatory arbitration for
resolution of corporate
disputes

PE / VC FUNDS
▪ CLOSED END INVESTMENT FUNDS (CONDOMINIUM)
▪ INVEST IN BRAZILIAN LISTED AND NON LISTED CORPORATIONS AND
IN OTHER FUNDS
▪ VC ONLY IN EMERGING COMPANIES (BASED ON ANNUAL REVENUES)
▪ PE INVESTORS – ONLY QUALIFIED ONES SUCH AS FINANCIAL
INSTITUTIONS, INSURANCE COMPANIES AND PENSION FUNDS
▪ SPECIAL ECONOMIC / POLITICAL RIGHTS TO QUOTAS
▪ FUND REGULATION
Informações Confidenciais de Propriedade de TozziniFreire Advogados

PE/VC FUNDS
▪ MANAGERS WITH DUTY TO INFORM: ACCOUNTING STATEMENTS,
PORTFOLIO COMPOSITION / NET EQUITY / ETC ANNUALLY AUDITED BY
INDEPENDENT AUDITING FIRM
▪ GENERAL MEETING – ACCOUNTS / MANAGER DISMISSAL / ISSUANCE
OF NEW QUOTAS / AMENDMENT TO REGULATION
▪ COMMITTEES – INVESTMENT / SUPERVISORY / AUDIT
▪ RESTRICTION TO RELATED PARTIES TRANSACTIONS
Informações Confidenciais de Propriedade de TozziniFreire Advogados

PE / VC FUNDS - PORTFOLIO
SHARES
DEBENTURES
WARRANTS
CONVERTIBLE
SECURITIES
PORTFOLIO
OTHER
ADMISSIBLE
ASSETS
Informações Confidenciais de Propriedade de TozziniFreire Advogados
DERIVATIVES
(HEDGING)
TRANSACTIONS
RELATED PARTIES
(GMEETING)
5% OF THE FUND
10% OF TK/VK
(GMEETING)
REAL ESTATE
PROPERTIES
INVESTMENTS
ABROAD
INVESTMENT
MANAGER
SHARES
EXTEND
LOANS
GRANT
GUARANTEES

ABVCAP / ANBIMA CODE
▪ SELF REGULATION AND BEST PRACTICES CODE
• PURPOSE:
▪ TRANSPARENCY ON MANAGEMENT ACTIVITIES
▪ TO CREATE STANDARD PRACTICES AND PROCESSES
▪ EQUITABLE TREATMENT
▪ INCREASE FIDUCIARY DUTIES
• MANDATORY ADHESION:
▪ MANAGERS AFFILIATED TO ABVCAP
▪ INVESTMENT MANAGERS OF PE / VC FUNDS
▪ INSTITUTIONS AFFILIATED TO ANBIMA
Informações Confidenciais de Propriedade de TozziniFreire Advogados

Brazil: International Fund
Structures
November 7, 2011
Peter A. Furci
Debevoise & Plimpton LLP
Private Equity and Venture Capital in Brazil Forum
23539783

Brazil Fund Structures
• Funds for international investors are typically
structured as limited partnerships (Delaware or
Cayman Islands) with investors as limited partners
and sponsor as general partner
• Brazil-focused international funds utilize this structure,
but also typically utilize a “FIP” structure to make
investments in Brazilian portfolio companies
23539783

FIPs
• Closed-end investment funds organized to invest in
Brazilian companies
• Permissible investments:
– Shares of sociedades anonimas (Target Companies)
– Debentures
• Investment restrictions:
– Derivative transactions (except for hedging purposes)
23539783
– Investments outside Brazil
– Real property
• Restrictions on borrowing and pledging

FIPs: Tax Considerations
• IOF of 2% on investments in FIPs (0% on outflows)
– Rate fluctuated in 2009-10 from zero to 6%
• FIP is not taxed on dividends from portfolio companies or
capital gains on sale of shares in portfolio companies
• FIP may distribute cash in respect of dividends received to
quotaholders without withholding tax
• Sale proceeds distributed by the FIP to a quotaholder are
exempt from tax if
– Quotaholder (individually or with related parties) owns
less than 40% of the FIP quotas/economic interests
– FIP does not own debt exceeding 5% of net equity
(except convertible debentures, warrants and
government bonds)
– Quotaholder not domiciled in a tax haven jurisdiction
23539783

FIP/Offshore Fund Structure
Non-FIP
Investments
(Public and non-
Brazilian Portfolio
Companies)
23539783
Fund A
(Cayman LP)
GP of GP
(LLC)
General Partner
(LP)
Fund B
(Cayman LP)
Fund C
(Cayman LP)
Delaware LLC A Delaware LLC B
Delaware LLC C
FIP 1 FIP 2 FIP 3
Private Brazilian
Portfolio Company
Private Brazilian
Portfolio Company
Private Brazilian
Portfolio Company

FIP/Offshore Fund Structure
• Delaware LLCs not tax haven investors
• Investor representations about 40% limit
• Multiple parallel funds typically utilized
– Fund documents contain numerous provisions to
ensure compliance with 40% limit
– Default, excuse and withdrawals raise potential issues
• Reallocation of investments for subsequent closings
– Sales of FIP shares between LLCs triggers IOF
– Could sell interests in LLCs across funds
– Could also be addressed by allocating commitments
across parallel funds to maintain ownership
percentages
23539783

Currency/Inflation Issues
• Currency movements
– If fund contributions/distributions are measured in
dollars, but investments are in real-denominated
assets:
– Carried interest is “supercharged” if the real appreciates
– Possible loss of sponsor incentives if the real
depreciates
– Investors sometimes ask for the “waterfall” to be
calculated in reais
• IOF tax
– Fund expense vs. investor expense
• Inflation
– Some funds adjust “hurdle” rate to reflect inflation rate
23539783
in Brazil

Thank you
23539783

In partnership with
Private Equity and
Venture Capital in Brazil
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

International
Series Brazil
Presentation of
Research
What are European LPs looking
for when choosing to invest
in Brazil, what are the main
drivers and what are the
deterrents?
Tim Hames
Head of Public Affairs, Communications and Campaigns, BVCA
In partnership with

LPs’ views of the Brazilian
PE/VC market
64

50
45
40
35
30
25
20
15
10
5
0
Percentage of
respondents
Source: ABVCAP/BVCA
Average PE/VC allocations
0-49mn 50-249mn 250-999mn 1-4.9bn 5bn +
65

90
80
70
60
50
40
30
20
10
0
Source: ABVCAP/BVCA
Market allocations #1
Average allocation among
respondents (%)
Emerging markets Developed markets
66

14
12
10
8
6
4
2
0
Source: ABVCAP/BVCA
Market allocations #2
Average allocation among respondents (%)
Latin America Asia Middle East Africa CEE
67

70
60
50
40
30
20
10
0
Brazilian PE/VC knowledge
Percentage of respondents
No real expertise Some broad
knowledge
Source: ABVCAP/BVCA
Detailed experience
and past expertise
Currently active and
well informed
68

90
80
70
60
50
40
30
20
10
0
Brazilian PE/VC perceptions
Percentage of respondents
Worse than other
emerging PE/VC
markets
Source: ABVCAP/BVCA
Not substantially
different from other
emerging PE/VC
markets
Some interesting and
unique characteristics
Exciting & unmatched
opportunities
69

70
60
50
40
30
20
10
0
Percentage of respondents
PE exposure to
high-growth
markets
Source: ABVCAP/BVCA
Reasons to invest
Improving skills &
experience of GPs
Better risk-return
on offer
Not at all important
Somewhat important
Very important
Portfolio
diversification
Political &
economic stability
70

80
70
60
50
40
30
20
10
0
Percentage of respondents
Limited
number of GPs
Source: ABVCAP/BVCA
Reasons not to invest
Scale of
opportunity
Entry
valuations are
too high
Weak exit
environment
Not at all important
Somewhat important
Very important
Challenging
regulatory/tax
issues
Political risk
71

35
30
25
20
15
10
5
0
Plans for EM/GP relationships #1
Percentage of
respondents
Not consider
new or existing
Source: ABVCAP/BVCA
Only renew
with existing
Existing and
consider new
Mostly new,
consider
existing
Only new Consider with
advisors
72

90
80
70
60
50
40
30
20
10
0
Plans for EM/GP relationships #2
Percentage of respondents
Increase number of GPs Maintain number of GPs Decrease number of GPs
Source: ABVCAP/BVCA
73

30
25
20
15
10
5
0
Source: ABVCAP/BVCA
Allocations: 2012 vs 2011
Percentage of respondents
First-time Considerably
investment in
2012
higher
Slightly
higher
Same
ammount
Slightly less Considerably
less
Won't invest
in 2012
74

60
50
40
30
20
10
0
Source: ABVCAP/BVCA
Expected commitments
Percentage of respondents
Next 12 months
Next 1-2 years
Next 2-5 years
More than 5 years
Zero Up to $24mn $25mn-49mn $50mn-99mn $100mn+
75

80
70
60
50
40
30
20
10
0
Percentage of respondents
Source: ABVCAP/BVCA
Expected returns
Vintages up to 2010
2011 vintages onwards
< 1x 1x - 1.5x 1.6x - 2x 2.1x - 3x > 3x
76

70
60
50
40
30
20
10
0
Source: ABVCAP/BVCA
First-time funds (FTFs) #1
Percentage of respondents
Currently investing in
FTF
Considering investing
in FTF
Investing in spin-offs Will not pick FTFs
77

60
50
40
30
20
10
0
Source: ABVCAP/BVCA
First-time funds (FTFs) #2
Percentage of respondents
Would invest in FTF before
initial close
Only invest in FTF after initial
close
Would not invest in FTF
78

80
70
60
50
40
30
20
10
0
Source: ABVCAP/BVCA
Value of local structures
Percentage of respondents
Local investor participation on
investment committees
Investments in local structures
eg FIPs
Not desirable Irrelevant Desirable
79

80
70
60
50
40
30
20
10
0
Percentage of respondents
Source: ABVCAP/BVCA
Preferred fund types
Generalist Small to mid-market buyout Venture Depends on advice
80

90
80
70
60
50
40
30
20
10
0
Sporting/pre-salt influence?
Percentage of respondents
Source: ABVCAP/BVCA
Irrelevant Slight influence Considerable influence
81

Thank you
82

In partnership with
Private Equity and
Venture Capital in Brazil
In partnership with
In association with Offshore jurisdiction
sponsor
Supporting sponsor

International
Series Brazil
The LP Perspective on
Investing in Brazil
What to look for when selecting
fund managers? Do first time
funds get into the mix? How?
In partnership with

International
Series Brazil
The LP Perspective on
Investing in Brazil
Philippe Munch (moderator)
Investment Director, Greenpark Capital
Anselm Adams
Director - Senior PE Portfolio Manager, PECA Ltd
Elvire Perrin
Partner and Head of Research, Altius Associates
Guy Eastman
Partner, Head of European Investment and Member of Global
Investment Committee, SVG Capital
In partnership with

International
Series Brazil
Closing Remarks
Kamran Anwar
EMEA Head of Private Equity Services, Citi
In partnership with