Carlyle Group closes second ‘local’ Brazil fund below target

  • Brazil fund in market for 18 months
  • Missed 1 bln reais target
  • Fund invested in largest private hospital in Brazil

Fundo Brasil de Internacionalizacao de Empresas FIP II was in the market about 18 months, a source said. The fund targeted about 1 billion reais ($452 million), the New York Times previously reported. It’s not clear why Carlyle couldn’t hit the target. Randy Whitestone, a Carlyle spokesman, declined to comment further. 

Capital from Fund II, which was raised in partnership with Banco do Brasil, was used in a recent investment Carlyle made in Rede D’Or São Luiz, the largest private hospital operator in Brazil, the firm said in a statement.

Fund II is a follow-up to the firm’s debut “local” Brazil fund, which closed on about $225 million in 2011. That fund was raised alongside the pan-South American Carlyle South America Buyout fund, which closed on $776 million. The local fund invested side-by-side with the bigger vehicle, according to a Carlyle press release.

The fund is considered “local” because its limited partner base is made up of local institutions, including local pensions. Brazilian pensions have long avoided committing to foreign-based private equity funds unless given a seat on the investment committee. GPs and LPs usually are not willing to go along with this type of structure because it gives too much decision-making control to investors, which in private equity structures are supposed to be passive.

“What you’ve seen … is that high quality GPs … have raised all their money outside of the country, so as not to deal with that [investment committee] issue,” a U.S.-based limited partner with Latin American experience said in a previous interview with Buyouts.

Fernando Borges, head of Carlyle’s South American buyout team, said in a past speech the local fund has benefits for Carlyle and Banco do Brasil.

“Banco do Brasil brings origination and leverage capabilities while Carlyle brings deal execution and portfolio management capabilities. [The bank’s] participation utilizes a separate vehicle including pension fund resources, which allows them to invest alongside our main fund and participate in many of the same deals that our other funds did,” Borges told the Latin American Private Equity and Venture Capital Association in 2013.