Conduits of Capital

markets strategy. 21 At the time of the transaction, Brazil had
a burgeoning macro-environment (i.e., attractive long-term
GDP projects, a booming consumer market, an emerging
IPO market) and the PE industry was recovering from its
collapse in 2009 due to the financial crisis. 22 A Coller Capital
and EMPEA survey in 2010 found that 19% of emerging
market PE investors expected to begin investing in Brazil
(the highest of any region) in the next two years, and Ernst
& Young reported that several reputable GPs were investing
in Brazilian deals (e.g., Actis, Advent, Carlyle). 23
Blackstone’s CEO Stephen A. Schwarzman explained that
a local presence was critical to success in the region in a
number of ways. In Blackstone’s 2010 10-K, Schwarzman
noted that the deal would “enhance [Blackstone’s]
‘intellectual library’ by providing all of Blackstone’s
businesses with increased access to information and deal
flow.” 24 He also affirmed that Blackstone’s partnership with
Pátria would “…enable Blackstone’s limited partners and
advisory clients to benefit from the fast-expanding business
opportunities in the country, as well as from Pátria’s deep
knowledge of the local market.” 25 Access to deal flow was
of critical importance, as more than 50% of Brazil’s private
equity transactions were done by local PE firms. 26 This point
was further acknowledged by Sergio Galvis of the law firm
Sullivan & Cromwell:
...a fragmented market composed of smaller
companies with less sophisticated management and
consolidation potential tends to favour firms with local
knowledge and ties, which are better positioned to
identify and take advantage of such opportunities
ahead of their competitors... Foreign firms are seeking
to tap into such local expertise to have access to more
attractive opportunities. 27
Schwarzman believed that success in the region (e.g., deal
flow, market knowledge, value creation) required an on-theground
presence in Brazil.
4. THE DRIVERS OF PRIVATE
EQUITY LOCATION DECISIONS
FOR DOMICILIATION
In this section, we move from the drivers of office location
to the drivers of domicile location. It is important to note
that while “offshore financial centres” are not uniform in
nature, scholars have found that they typically exhibit the
following features, as summarised by Ahmed Zoromé of
the International Monetary Fund (IMF): “(i) the primary
orientation of business toward nonresidents; (ii) the
favourable regulatory environment (low supervisory
requirements and minimal information disclosure) and; (iii)
the low-or zero-taxation schemes.” 28
While these definitions give a sense of the nature of an
offshore financial centre, some experts take issue with
this definition’s lack of objectivity. As a result, Zoromé
suggested that offshore status could be indicated by a high
ratio of net financial services exports to GDP to suggest
that the “[provision of] financial services to nonresidents
[is] on a scale that is incommensurate with the size and
the financing of its domestic economy.” Still, Zoromé noted
two key limitations with this definition. First, data limitations
often inhibit the calculation of financial services exports
directly. Instead, proxies must be used to estimate this
figure. Even with complete data, however, the definition
ultimately depends on a subjective determination of an
“incommensurate” ratio, which itself can depend on the
comparative sample. 29
While precise definitions are challenging, it is fair to say that
in reference to “offshore status,” the literature we discuss
below typically refers to those jurisdictions that clearly exhibit
the traits summarised by Zoromé (noted above), as is the
case with, for example, Mauritius and the Cayman Islands.
We first look at the distribution of domiciles in a variety of
markets and subsequently draw on recent surveys of fund
managers in the alternative asset industry.
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