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Challenges and Transformations in Brazilian Private Equity in 2023 Added in 7/31/2023
With rising interest rates, crises in banking institutions, and geopolitical turbulence, the first half of 2023 was marked by a reduction in PE activity. Even amidst volatility, public markets have recovered, and various PE-backed companies have made offerings. There still is USD$3.7 trillion in dry powder in acquisition funds, providing incentive to act after a year of relative inactivity and a horizon of decreasing interest rates.

In Brazil, the PE industry was hit by higher interest rates and lower liquidity. Despite that, the fundraising and commitments from international LPs went from USD 245 million at SEM II of 2022 to USD 357 million in SEM I 2023. This shows a sign of market improvement and a positive perspective for the second semester of 2023.

In Brazil, PE funds have been focusing on specialized healthcare companies, among other "recession-proof" sectors. The adoption of the new tax regime in Brazil and the expectation of increasing interest rates in the US offer challenges and opportunities for PE. The trend is that  a growing number of Brazilian funds concentrate their theses on sustainability and environmental themes.

This trend is reinforced with the arrival of foreign ESG-focused funds, such as Franklin Templeton and BNP Paribas. With almost 200 ESG-classified funds in Brazil, compared to over 5,000 in Europe and 600 in the US, there is a large room for growth.

ESG-focused managers such as GEF Capital, BTG, Aqua, Good Karma Partners, and Vinci Partners, are attentive to opportunities related to the environment, forest preservation, and climate, indicating a growing emphasis on ESG investments. Energy and transport have been the main focus of investment, with potential for expansion in areas such as carbon emission management and production and use of green hydrogen.

In summary, 2023 presents itself as a year of challenges and renewal for PE in Brazil. The ability to adapt and respond to changes in market conditions will be crucial for success.

Vitor Kawamura
Investor Relations PE | ABVCAP

Source: ABVCAP


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