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The rise of the private equity and venture capital industry is part of the growing maturity of Brazilian markets and helps meet the enormous needs for investments in the economy. This article analyzes the Brazilian and U.S. private equity markets from a comparative perspective. In fact, a case can be made that a global market for venture capital and private equity is emerging (Megginson [2004]). We use the U.S. private equity industry as an ideal type to give an idea of how the Brazilian market, which is relatively less developed, is likely to evolve.
We begin with an overview of the private equity and venture capital industry using the U.S. market as a benchmark. Our point is that the Brazilian industry is now evolving toward a sustainable growth pattern. After highlighting the essential role played by public agencies and the opportunity that public-private partnerships represent, we analyze the challenges faced by the industry. We divide these challenges in two broad groups: those that relate to the economy at large and those that are more specific to private equity investment and its different phases. We pay special attention to the challenges relating to exit strategies and the scarcity of IPOs. On the brighter side, recent regulatory reforms seem to bode well for future opportunities since they strive to enhance corporate governance, provide better protection of shareholders, and encourage pension fund investments.
OVERVIEW OF THE PRIVATE EQUITY SECTOR IN THE UNITED STATES: THE CASE OF A MATURE MARKET
Before moving to the Brazilian market, this article considers the U.S. case, paying special attention to the milestones toward maturity. This will give an idea of what might be expected in Brazil in the years to come.
Private equity has only recently matured into an accepted investment option and separate industry, moving from what was largely the purview of wealthy individuals and high net worth families in the late 197Os to an asset class dominated by institutional investors (Lake and Lake [200O]). The investors who provide funds, the general partner who has discretionary power to allocate these funds and comanage the investment, and the company that is the final recipient of the funds are the participants in this industry (Exhibit 1). Each partnership is typically a closed-end fund...