The history of equity investment funds in Brazil is as recent as it is promising: it promises to be the most important instrument of financing to companies and projects, to the detriment of the failed model of on lending and bank loans.
The first crop of equity funds in Brazil came into existence with the regulation of the MFEE (Mutual Fund for Emerging Enterprises) in 1994. Almost 10 years later, with the learning of this first crop, the EIFs (Equity Investment Funds), an instrument now more known and used.
These funds, on average, are made to last between 10 and 12 years. It is the period in which the fund manager has to raise funds with investors, choose the companies that will invest, according to the investment thesis defined in the fund regulation, invest, develop the company, sell its share and return the monetized capital to the investors.
Since 1994, we have had only two cash crops, the second one, started in 2004, should be ending the divestment between 2014 and 2016. However, due to the economic moment, much of the investment still awaits a better scenario to disinvest and return the monetized capital to investors.
We are at the beginning of the 3rd crop of equity funds in Brazil, with more mature instruments, better qualified managers, the issue is no longer new for investors, especially Brazilian pension funds, which have invested in the last two decades and have learned to live together with illiquidity, with some successes and other failures.
On the average, it worked. The profitability of private equity and venture capital funds has returned above conventional investments (variable, fixed and real estate) worldwide, thus an important instrument for portfolio composition.
We live a unique moment for the Industry of Stock Ownership Funds in Brazil: the economic scenario offers innumerable risks and uncertainties, there is difficulty in accessing forms of financing, chaos is not lacking. This is the perfect setting for the beginning of a new investment cycle: it will only lack good projects!