The Goldman Sachs Group Inc.
) plans to re-initiate its private-equity (PE) investments in
Brazil, Bloomberg reported on Monday. The firm's plans are based on
the expectation of about 35% return from Brazil's private-equity
market. Specifically, Goldman plans to target infrastructure,
commodities and telecommunications sectors for its investment.
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Despite the uncertainty related to taxes and exchange rates,
transparency in regulations and improving macro environment in
Brazil will help Goldman achieve high returns.
With the ambition of expanding in the country, Goldman almost
doubled its workforce over the past two years, taking the total
count to 300. In late 2009, it became a full-service bank in
Previously, Goldman's venture in the Brazil PE market ended in
2007, when the investment of $196 million (400 million reals) of
its own capital in Santelisa Vale SA, a sugar-cane processor led to
streamlining of debt. Moreover, in the same year, Goldman invested
in BRA Transportes Aereos Ltda., an airline company, which went
bankrupt later on.
The Brazilian government has shown its support by coming forward
with financial assistance. BNDES, Brazil's development bank, aims
to finance about 80% of the nation's 1 trillion reals for
infrastructural needs during the next five years. During this
5-year tenure, the country targets to host the 2014 World Cup and
2016 Olympics. However, it is expected that PE investors would fund
only 10% to 20% of the total amount.
In spite of a drop in new Brazilian equity sales by 53% to $5.16
billion till August and M&A transactions declining 41% to $43.3
billion, Goldman aims to sustain its workforce. The bank aims to
balance the decline based on its diverse portfolio of businesses.
Among other firms, Advent International acquired a 50% stake in
Terminal de Conteineres de Paranagua SA in January 2011 in Brazil
and aims to invest $3 billion in the country. Further,
The Blackstone Group LP
) purchased a 40% stake in Patria Investimentos in 2010, a
Brazilian private-equity and asset-management company.
Moreover, Highbridge Capital Management, a unit of
JPMorgan Chase & Co.
) acquired Gavea Investimentos Ltda's private-equity business in
Based on well-developed agricultural, mining, manufacturing, and
service sectors, Brazil's economy overshadows other South American
countries. Also, it is gradually increasing its foothold in world
markets. After reporting strong growth in 2007 and 2008, Brazil was
hit hard by the onset of the global financial crisis in early 2009.
However, the Brazilian market was the first to show signs of
With the expectation of a potential long-term GDP growth rate and
conservative monetary policies, Brazil is a promising choice for
investments and is attracting foreign investors. Therefore, with
greater access to local knowledge and resources, the prospect of
participating in emerging markets exists for PE firms.
Additionally, Goldman has vigorously invested in Indian private
equity. Previously, the company invested $115 million in Max India
healthcare. Since 2006, the firm has endowed more than $2 billion
funds in India, while globally it has come up with an investment of
about $8 billion in the healthcare sector spread over more than 30
Recently, the private equity arm of Goldman and New Enterprise
Associates (NEA), an American venture capital fund, came together
with an investment of $54 million in Bangalore-based Nova Medical
Centers. Nova is a leading Indian healthcare firm for
day/short-stay surgical care and fertility.
Therefore, yielding returns on such investments will accelerate
Goldman's profitability and instill investors' confidence. Goldman
currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. Considering the fundamentals, we also
maintain a long-term Neutral recommendation on the stock.