May 1, 2012
Interviewed by: David Snow
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Nurturing the Brazilian LPs

All developing nations want ecosystems for innovation in which entrepreneurs, fund managers and local institutional investors partner to build companies and create jobs. But building that infrastructure is not easy for a small, emerging economy.

Maria Susana Garcia-Robles of the Multilateral Investment Fund, a Principal Investment Officer at this division of the Inter-American Development Bank, strategically commits capital to fund managers across Brazil and Latin America (39+ funds) and educates local participants in fledgling ecosystems, including LP communities.

In an exclusive Privcap interview at the last Congresso ABVCAP in São Paulo, Garcia-Robles discusses why Brazil’s private equity market is a “laboratory,” the uniqueness of Brazil’s LPs and how Latin American governments seek guidance from market experts in Brazil and the U.S.

All developing nations want ecosystems for innovation in which entrepreneurs, fund managers and local institutional investors partner to build companies and create jobs. But building that infrastructure is not easy for a small, emerging economy.

Maria Susana Garcia-Robles of the Multilateral Investment Fund, a Principal Investment Officer at this division of the Inter-American Development Bank, strategically commits capital to fund managers across Brazil and Latin America (39+ funds) and educates local participants in fledgling ecosystems, including LP communities.

In an exclusive Privcap interview at the last Congresso ABVCAP in São Paulo, Garcia-Robles discusses why Brazil’s private equity market is a “laboratory,” the uniqueness of Brazil’s LPs and how Latin American governments seek guidance from market experts in Brazil and the U.S.

David Snow, Privcap: We are joined by Susana Garcia Robles from the Multilateral Investment Fund. Welcome to Privcap today.
We are in Sao Paulo, and so we”re going to be talking about the development of the Brazilian private equity ecosystem. You have a very interesting perspective on the development of Brazil because you invest across Latin America. Maybe you can talk a bit about what your organization does and then we can get to Brazil.
Susana Garcia-Robles, Multilateral Investment Fund: Sure. In a snapshot, the Multilateral Investment Fund is an independent trust fund from the Inter-American Development Bank. We were born as a bipartisan initiative way back in 1992. Bush Senior started it, and then Clinton continued it.
Initially, the gist of the MIF, as we call it, was to help the region, the Latin American Caribbean region, with privatization issues. But very soon, that scene was changed for private sector development. Within private sector development, one of the most vibrant programs that MIF has had has been investing as a fund of funds, in seed and venture capital funds in Latin America and the Caribbean.
Although our main resources come in the form of grants, to work with private sector and public sector on the development of ecosystems conducive to private sector development, entrepreneurship, competitiveness, all issues to make Latin America a very competitive region vis-a-vis other developed markets.
Snow: So, Susana, let”s talk a bit about scale of your operations. How many funds have you backed in Latin America? But then, how many funds have you backed in Brazil specifically?
Robles: We started investing in 1996. If we count, historically, our portfolio, we approved 72 funds in the region. And five, seven of them never closed because there was not enough interest among other LPs. Then seven, eight didn”t give us a lot of good stories but gave us, provided us, with the source of lessons learned.
Today, we have an acting portfolio of 39 funds operating in the region, 16 of them in Brazil. And then we are about to legally close the first closing of seven more funds. So we”ll have 46 funds in our portfolio. Usually we approve, every year, five funds in the region.
So what we did is, we took Brazil as our laboratory of experiences and lessons learned, to try to see if it worked in Brazil, how we could adapt it to other regions, to other countries, that maybe didn”t have the size of Brazil but we could see how to replicate it.
Snow: Let”s talk about Brazil specifically and take advantage of the fact that you were able to compare it to other Latin American private equity markets. What is unique about the way that the Brazilian GP community has developed?
Robles: Excellent question. I love that question. Because Brazil does have a uniqueness in that. It is that the Brazilian fund managers understood very soon, early in the game, that the success of a Brazilian fund manager was a success for the whole industry.
And don”t get me wrong. Everybody wants to have a better home run than the other one. But they take it very seriously to build the industry together. You don”t find that in many other countries. I think it”s a great fault in other cultures.
Brazilians have understood that they needed to work together to make the case for Brazil. And those Brazilians who started way back in the “90s, like CRP or others– we started in Brazil in 1998– we have walked with them throughout the good things, the bad things. But there was that sense of companionship. And that made it happen.
Today we are here at the Congress. ABVCAP has over 600 people attend it. I was there on the very first meeting of what was to be ABVCAP. It didn”t happen in Sao Paulo. It happened in Porto Alegre and we were 25 people, between investors and GPs and any other government agency. And we were dividing tasks among ourselves. Who”s going to try to do this? Who”s going to do this? Actually, that sense of being together, to push the industry together, took us to where we are at today, and we can enjoy this great conference today.
Snow: Well, can you talk a bit about the development of the Brazilian LP market? What is the level that many of the local pension funds and institutional investors are at, with regard to their understanding of and their participation in the local Brazilian private equity market?
Robles: It”s an interesting question. The MIF never invested more than 50 percent of a fund in the beginning. And today in Brazil, we are not investing more than 10%, 12%. Which tells you if they grow someday, LP base.
But in the beginning, the majority of the LPs were government agencies. We did have, early on, a few pension funds, very visionaries, the small ones in Florianopolis and Rio Grande do Sul. But, I would say, a breaking point was a program started by FINEP, in partnership with the MIF, Petros and Sebrae.
That program, the INOVAR program, put all the investors together and said, let”s look at this industry together. Let”s look at our base of GPs. So, that started in 2001. In 2004, 2006, the biggest pension funds began to put money in venture capital funds. And that was really a huge milestone.
Today, I would say that the composition is mixed. You have pension funds. You still have a very strong presence by FINEP. You have different technological parks beginning to put money, some banks, some family offices, some high net worth individuals and angel investors.
Brazil has a different view on the development of angel investors segment. In other countries, angel investors invest directly. In companies here, in Brazil, angel investors like to invest in funds. So we have counted, between FINEP and the MIF in funds that we have supported, that we have over 100 angel investors putting money in funds that are seed and VC.
Snow: I know that it is the mission of the International Finance Corp, the IFC, their mission is to put themselves out of business. They hope that the managers that they back are so successful that eventually there”s not development money needed. Is that the goal of your organization?
Robles: Absolutely, absolutely. We have taken a different approach. We go to the highest three segments, angels, seed, and venture capital really early stage. So I think we are going to be a little longer than that IFC on business. But definitely, when they ask me, what”s the goal of MIF in this industry, it”s that one day nobody will knock at our doors. Nobody will need us, because the private sector has already entered and is successful and there are very good stories going around.
Snow: But it sounds like, in the meantime, many people will be knocking at your door and so you”re going to be very busy.
Robles: Absolutely. Yes.
Snow: So there”s quite a demand for both the capital and also for the perspective of your organization?

 

Robles: Yes. We do have the benefit of using a leg, that is called grants, to work with governments in building this ecosystem. When we look at Silicon Valley, we see the energy there doesn”t come only because of the entrepreneurs and the ADS. Entrepreneurs go there because they also have a lot of a circle of trust, service providers that understand the industry, family and friends, research done in universities. All that is very hard to find in countries in Latin America.
So the MIF is working, of course, with FINEP in Brazil,  but also in Uruguay. Also in Chile, with CORFO . Also in Colombia. Also Mexico, with NAFIN. We”re working now with Jamaica.
What we are doing is, we are bringing people from Costa Rica, Jamaica, Ecuador to Spain. One, two weeks here, working with FINEP in the INOVAR program, and when they go back to their countries, their mentality is totally changed. They know they have to look at what”s happening in their countries. What is the road map that they need to develop in order to get the venture capital industry, according to their size.
So that”s a huge benefit that we have. We can prepare and massage, a little bit, the ecosystem before we really put a lot of money into funds. And we also have done a lot of training fund managers and pension funds. Like, in Brazil, before the pension funds invested here, they were road shows then when the US government, bringing US pension funds to Brazil, and then bringing Brazilians to the US. So to talk among peers changed their view on the industry. It”s different when somebody says, oh you have to invest. When it is a peer that understands all your issues, it really was a breaking point, very important.
Snow: Well, Susana, thank you so much for joining Privcap today.

 

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