ADIT 2011: Tremendous volume of LP capital eyeing Brazil

Behind China, Brazil is now the most attractive emerging market for institutional investor capital, but some LPs are frustrated by the difficulty in deploying equity.

Institutional interest in Brazil has grown “tremendously” over the past few years, but some LPs are struggling to deploy capital in scale, panelists at the ADIT Invest 2011 conference said today.

During a panel debate on the final day of the conference, Mari Canton, managing director of INTL Provident Group, which helps place institutional investor capital in funds and projects globally, told delegates about one $40 billion pension fund that has tried for two years to enter Brazil but “still can’t get deals done”. She noted that cultural differences are part of the reason, but she stressed that much of it was down to investors not knowing how to “come in [to the country] at this point”.

Canton told PERE on the fringes of the panel that, prior to the financial crisis, China and India were the top locations for institutional investors but Brazil has now overtaken India. “On a relative basis, you still have a lot of the money going to China, but there is more interest in Brazil now,” she said, adding that there are an estimated 50 to 100 large LPs targeting Brazil compared to just a handful five years ago. “There is a tremendous amount of interest,” she said, “particularly for Brazil-focused funds and direct investments through joint ventures.”

During the same debate, Axel Chaves, managing director of Paladin Realty, said almost 95 percent of his firm’s pipeline is targeted towards the residential market, particularly low-income housing under the Minha Casa Minha Vida programme. Targeting average returns of 23 percent to 24 percent, he said the firm currently has 30 projects under development, with many housing units already sold prior to construction.

“The horizon is very positive for opportunities,” Chaves told PERE, although he said the increasing investor attention being paid to Brazil naturally means more competition. “We see the competition among those companies that are offering opportunities to investors, but we also see competition among the developers being sought by [fund] management companies.”

Brazil, Chaves summed up, has great potential. “It’s huge and its growing,” he said.