Latin America: Brazil’s Banco Sul America Launches Own P.E. Fund –

In a move that expands its investment portfolio and leverages its name, Sao Paulo-based Banco Sul America (BSA), the largest insurance company for the Latin American region, has created a private equity wing, Sul America Capital Partners (SACP), in order to launch its own private equity fund, the Sul America Private Equity Fund.

SACP is seeking to raise a total of $200 million in commitments, of which Sul America Group, Banco Sul’s parent, has already pledged $40 million. SACP will additionally manage a local Brazilian fund that will invest alongside SACP’s new private equity fund on a pro-rata basis. SACP is currently in discussion with Chase Capital Partners.

In regards to the $40 million Sul America Group is contributing, Robert Linton, assistant director at Banco Sul America, said, “This makes my job easier because we are more aligned as a significant limited partner. We will look to do five to seven investments over four years.”

Linton added each investment will range from $20 million to $50 million. “We will look at one, maximum two, investments per year,” he said

The investment team on SACP will be led by Joaquim Felipe Cavalcanti and Helektra Karnakis, both of whom have been involved in all aspects of the structuring, managing and exiting of BSA’s principal private equity transactions since 1994.

The macroeconomic situation also contributed to Banco Sul’s decision to create its own fund. Brazilian President Henrique Cardosa’s government has been characterized by relative stability, steady growth and low inflation, making a remarkable recoverty from last year’s devaluation.

SACP will consider investments from less than $10 million to multi-billion dollar deals. But Linton was quick to add that for deals of $10 million or less, the enterprise value has to be exceptional and he does not consider multi-billion dollar deals “really private equity. We have leverage capacity from the bank, so we will look at those [deals]. I see [a deal like that] as more strategic, less diligence, more credit analysis.”

Banco Sul prefers to invest in minority financial stakes of less than 50%, but demands control of the companies in which it invests.

“The results are clear: If you don’t have control, you don’t have access,” Linton said. “You need to be involved at the board level and in day-to-day management. Microlite is a good example. We own 30% of [the German company]. Varta owns 50% and the Latin American Enterprise Fund has 20%. We’re on the board of the company and have a group of strategic investors. We have a consortium where we control the consortium.”

Banco Sul will invest primarily in Brazil, and SACP sees nearly no reason to expand beyond it, except when investments elsewhere in Latin America add value to other of SACP’s portfolio investments, or when exceptional opportunities arise.

“Brazil is a regional play,” said Linton. “It has 47% of the landmass in South America and is amazingly diverse. There are more opportunities here than in all of Latin America combined. That’s why Argentinean firms are setting up here.”

Investing in Brazil, however, still presents special challenges, such as the complications of due diligence. “That’s where we bring added value,” Linton says. “I could manufacture a reason to source deals regionally, but as soon as I stepped into Columbia I’d be lost. I believe you can have international synergies if you’re like [Hicks, Muse, Tate & Furst] and bring industry expertise [for example] in cable and media.”

“Two years ago regional funds were winning and people said don’t put all your eggs in one basket. But if the basket has holes in it, you’re stuck.”