Strategic Solutions in Economics ILPA February 2012 International - - PowerPoint PPT Presentation

Strategic Solutions in Economics

ILPA

February 2012

 International Outlook  Brazilian Outlook  PE Market

 International Outlook  Brazilian Outlook  PE Market

USA: surprisingly good economic data; risks stemming from unprecedent political divide China: can it continue to grow at rapid pace?

• Far from middle income trap
• Moderate risks in housing and

shadow banking

• Room for expansionary fiscal and

monetary policy  Europe’s quagmire: risks of disruptive events are considerable; subpar growth for years is good scenario

• Wrong diagnosis and

pigheadedness of Germany and ECB

• Why the UK pay so low

interest rates?

International Outlook

A new year fraught with risks.

The PIIGS are uncompetitive and fiscally unsustainable economies

International Outlook

114 123 116 65 63 57 100 109 40 50 60 70 80 90 100 110 120 130 2006 2007 2008 2009 2010 2011* 2012* 2013* 2014* 2015* 2016* PIIGS (average) Brazil US

General Government Gross Debt % of GDP. Source and Projections: IMF. Chart: LCA.

Higher risk aversion increases the volatility in the financial market.

International Outlook

50 100 150 200 250 300 350 400 450 500 fev/08 abr/08 jun/08 ago/08

• ut/08

dez/08 fev/09 abr/09 jun/09 ago/09

• ut/09

dez/09 fev/10 abr/10 jun/10 ago/10

• ut/10

dez/10 fev/11 abr/11 jun/11 ago/11

• ut/11

dez/11 USA Europe

TED Spread: US x Europe Source: Bloomberg. Chart: LCA.

10 20 30 40 50 60 70 80 90 mar/08 mai/08 jul/08 set/08 nov/08 jan/09 mar/09 mai/09 jul/09 set/09 nov/09 jan/10 mar/10 mai/10 jul/10 set/10 nov/10 jan/11 mar/11 mai/11 jul/11 set/11 nov/11

VIX: Volatility Index Source: CBOE. Chart: LCA.

Activity data in the Eurozone has weakened in recent months.

International Outlook

30 35 40 45 50 55 60 65 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11

Europe: PMI Manufacturing >50 = growth. Source: Bloomberg.

30 35 40 45 50 55 60 65 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11

Europe: PMI Services >50 = growth. Source: Bloomberg.

The US economy recovery appears reasonably well established when compared with the rest of the world: recent economic prints on jobs, industrial production and confidence have posited positive surprises.

International Outlook

International Outlook

1.3

• 3.7
• 8.9
• 6.7
• 0.7

1.7 3.8 3.9 3.8 2.5 2.3 0.4 1.3 2.0 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011

USA: Gross Domestic Product % QoQ ann. Seasonally Adjusted. Source: BEA.

International Outlook

• 0.1
• 3.8
• 5.1
• 1.5 -1.9

2.3 0.4 2.7 2.9 2.6 3.6 2.1 0.7 2.3 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011

GDP: Household Consumption % QoQ ann. Seasonally Adjusrted. Source: BEA.

• 5.2
• 12.3
• 25.2
• 32.2
• 17.0

0.7

• 3.7

1.1 19.5 2.3 7.5 1.2 9.2 12.3 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011

GDP: Fixed Investments % QoQ ann. Seasonally Adjusted. Source: BEA.

Labor market finally displaying stronger than expected job creation.

• 34
• 102
• 42
• 21

144 229 48 65 93 110 109 143 128 167 94 261 219 241 99 75 173 72 220 117 140 209 nov/09 dez/09 jan/10 fev/10 mar/10 abr/10 mai/10 jun/10 jul/10 ago/10 set/10

• ut/10

nov/10 dez/10 jan/11 fev/11 mar/11 abr/11 mai/11 jun/11 jul/11 ago/11 set/11

• ut/11

nov/11 dez/11

USA: Change in NonFarm Payroll Thousand workers (Private Sector). Source: BLS.

*Last data observed in December/11

International Outlook

International Outlook

3% 4% 5% 6% 7% 8% 9% 10% 11% Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11

USA: Unemployment Rate %. Seasonally Adjusted. Source: BLS.

10.1% 8.5% *Last data observed in December/11

The Chinese economy has lost some steam, but it looks like a soft landing

International Outlook

11.5 11.2 11.3 10.1 9.0 6.8 6.2 7.9 9.1 10.7 11.9 10.3 9.6 9.8 9.7 9.5 9.1 3Q 2007 4Q 2007 1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011

China: Gross Domestic Product % YoY. Source: NBSC.

15.7 12.8 18.1 17.8 16.5 13.7 13.4 13.9 13.3 13.1 13.3 13.5 14.2 14.9 14.8 13.4 13.3 15.1 14.0 13.5 13.8 13.2 12.4 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 MA-3m

China: Industrial Production % YoY. Source: NBSC

Point of concern: European markets account for a significant share of Chinese exports.

International Outlook

• 0.8
• 0.6
• 0.4
• 0.2

0.0 0.2 0.4 0.6 0.8 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(p) China-USA China-Europe

Correlation between GDP growth rates Source: IMF. Chart: LCA.

15% 16% 17% 18% 19% 20% 21% 22% 23% Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

Share of Exports from China %. Source: Bloomberg. Chart: LCA.

(i) Deceleration in inflation rates and (ii) low public debt as percentage of GDP: there is scope for the government to estimulate economic activity.

International Outlook

• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 May/08 Jul/08 Sep/08 Nov/08 Jan/09 Mar/09 May/09 Jul/09 Sep/09 Nov/09 Jan/10 Mar/10 May/10 Jul/10 Sep/10 Nov/10 Jan/11 Mar/11 May/11 Jul/11 Sep/11 Nov/11 *Last data observed in November/11

China: Consumer Price Index % YoY. Source: NBSC

17.0 17.7 33.8 26.9 22.2 18.4 15.5 2008 2009 2010 2011 2012 2013 2014

China: General Government Gross Debt % of GDP. Source: IMF.

 International Outlook  Brazilian Outlook  PE Market

Medium term prospects: there are hindrances, but we see reasons to be optimistic.

• Relevant storm at the end of 2010: commodities adverse

shocks and excessive domestic demand growth: inflation rates spiked

• Fiscal and monetary and credit policy were tightened,

economic activity decelerated in the second semester and in the final quarter inflation decelerated more markedly

• In the first semester of 2012 growth will be moderate,

acelerating later in the year due to relaxation of monetary policy already in course and diminished international uncertainties

• Government is pledging toughness in fiscal policy in order to

achieve lower interest rates without stoking inflation

In the 2011 first semester, the economic policy focus was on inflation.

Brazilian Outlook – GDP

Lower than expected

*Market forecasts is represented by the median of market expectations collected by the Brazilian Central Bank with more than 90 banks and non- financial intitutions six months before the data official release.

The slowdown of the Brazilian economy was stronger than expected: monetary and fiscal tightening in the first semester coupled with the worsening of the international outlook are the culprits. Brazilian Outlook – GDP

Lower than expected

4.8 4.9 4.1 4.3 5.3 4.2 3.3 2.1 4Q 2010 1Q 2011 2Q 2011 3Q 2011 GDP: Market Forecasts* vs. Observed Data % YoY. Source: BCB & IBGE. Charts: LCA. Forecasts Observed Data

Monetary tightening and macroprudential measures contributed to moderate credit

• expansion. European

crisis adversely affected expectations

• f consumers and

businesses and also helped to slowdown the fixed investments. Brazilian Outlook – GDP

Lower than expected

9.6 7.2 11.2

• 14.9
• 4.4

10.6 15.1 10.2 7.7 6.2 9.7 4.8 2.5 3.9

• 0.9

1Q 2008 2Q 2008 3Q 2008 4Q 2008 1Q 2009 2Q 2009 3Q 2009 4Q 2009 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011

GDP: Quarterly Domestic Demand (Household Consumption + Fixed Investments + Government Spending) % QoQ annualized. Seasonally Adjusted. Source: IBGE. Chart: LCA.

Brazilian Outlook – GDP

Lower than expected

70 75 80 85 90 95 100 105 110 115 120 jan/06 mai/06 set/06 jan/07 mai/07 set/07 jan/08 mai/08 set/08 jan/09 mai/09 set/09 jan/10 mai/10 set/10 jan/11 mai/11 set/11

Businesses Confidence (MA-3m) Source: FGV. Chart: LCA.

*Last data observed in December/11

Brazilian Outlook

Monetary Policy

8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12

Selic target (% per year) Source: BCB. Chart & Forecasts: LCA.

BCB is likely to cut the Selic rate by 50 basis points per meeting (January, March and April) to reach 9,50%.

Labor market: unemployment still very low, but real wages growth has declined sharply.

Brazilian Outlook – GDP

Perspectives for 2012

5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Unemployment Rate %. Seasonally Adjusted. Source: IBGE. Forecasts: LCA

*Last data observed in November/11 5.2 6.3 7.3 6.7 6.3 8.8 9.2 10.5 11.1 10.4 7.1 8.6 6.7 6.9 4.1 6.9 6.6 6.0 5.7 1.4 0.7 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11

Effective Real Income (all jobs) % YoY. Source: IBGE. Chart: LCA.

*Last data observed in November/11

Brazilian Outlook – GDP

Perspectives for 2012

2.0 1.6 1.0 0.8 0.8 0.7 0.0 0.0 0.9 1.4 0.9 1.5 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

Gross Domestic Product % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 3,1%

3.3 3.7 3.6 0.0 1.3 1.3

• 0.2
• 1.0

0.1 3.6 2.0 2.1 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Fixed Investments % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 4,0%

1.7 0.9 2.4 2.0 0.5 0.5

• 0.1

0.4 1.9 1.8 1.0 1.0 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Household Consumption % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 4,5%

2.0 1.6 1.0 0.8 0.8 0.7 0.0 0.0 0.9 1.4 0.9 1.5 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Government Spending % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 3,8%

Brazilian Outlook – GDP

Perspectives for 2012

2.8 2.0 0.0 0.0 1.8 0.2

• 0.9
• 1.1

0.4 1.9 1.4 3.1 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Industry % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 2,2%

3.0 2.8

• 3.8

0.4 3.6

• 0.6

3.2 3.1 3.4 0.4

• 0.3

0.5 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Agricultural % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 8,0%

1.6 4.2

• 1.5

1.6 1.2 0.8 0.2

• 0.5
• 0.7

1.5 1.8 1.6 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Construction % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 1,5%

1.4 1.1 1.4 0.9 0.5 0.8

• 0.3

0.4 1.1 1.0 0.7 1.0 1Q 2010 2Q 2010 3Q 2010 4Q 2010 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012

GDP: Services % QoQ. Seasonally Adjusted. Source: IBGE. Forecasts: LCA.

Forecast for 2012: 2,9%

Brazilian Outlook – Investments

Perspectives for the next years

378 72 36 40 33 29 28 12 205 60 28 22 25 20 18 9

Gas & Oil Mining Steel Chemistry Auto Electronics Pulp and Paper Apparel

Sum of Investments (2006-09) Sum of Investments (2011-14)

Perspectives of Investments: Industry R$ bi (constant). jun/11 Source: BNDES.

7.5% 11.7% 9.7% 7.2% 16.1% 6.5% 4.7% 16.5%

832.1 180.2 34.3

Machinery & Equipments Construction Others Composition of the Investments: Industry (2011 e 2014) R$ bi (constant). jun/11. : BNDES.

Brazilian Outlook – Investments

Perspectives for the next years

139 72 41 60 51 18

104 62 26 20 30 5

Utilities Telecom Sanitation Railways Roads Ports Sum of Investments (2006- 09) Sum of Investments (2011- 14)

Perspectives of Investments: Infrastructure R$ bi (constant). jun/11. Source: BNDES.

37.5% 14.2% 31.6% 12.1% 3.7% 7.5%

280.1 92.1 28.5

Machinery & Equipments Construction Others Composition of Investments: Infrastructure (2011 e 2014) R$ bi (constant). jun/11. Source: BNDES.

Marked slowdown in the second semester of 2011.

Brazilian Outlook – Construction

Perspectives

1.6 4.2

• 1.5

1.6 1.2 0.8 0.2

• 0.5
• 0.7

1.5 1.8 1.6

• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12

Construction GDP

• Var. % QoQ (s.a.). Source: IBGE and LCA Forecasts

Real estate is experiencing a period of slowdown, after a prolonged period

• f strong

expansion: since mid-2011 housing sales has grown at a weaker pace than launches.

Brazilian Outlook – Real Estate

Perspectives

500 1000 1500 2000 2500 3000 3500 4000 4500 jan/04 abr/04 jul/04

• ut/04

jan/05 abr/05 jul/05

• ut/05

jan/06 abr/06 jul/06

• ut/06

jan/07 abr/07 jul/07

• ut/07

jan/08 abr/08 jul/08

• ut/08

jan/09 abr/09 jul/09

• ut/09

jan/10 abr/10 jul/10

• ut/10

jan/11 abr/11 jul/11

• ut/11

Housing Sales and launch (Sao Paulo) - 3MMA In units. (s.a.) Source: Secovi-sp Sales Launches

Brazilian Outlook – Investments

Perspectives

10 20 30 40 50 60 70 2003 2004 2005 2006 2007 2008 2009 2010 2011 (f) 2012 (f) 2013 (f) 2014 (f) 2015 (f)

BoP: Foreign Direct Investments US$ Bi. Source: BCB. Forecasts: LCA.

61,325 64,639 78,874 103,783 148,782 178,066 133,194 2005 2006 2007 2008 2009 2010 2011*

BNDES: Disbursements R$ Milhões constantes. Acum. em 12 Meses. Fonte: BNDES.

*Números observados até o mês de outubro * Last data observed in October/11

Forecasts

Base Scenario (65%) Units 2008 2009 2010 2011 2012 GDP - World (%) 3.0

• 0.6

4.8 3.7 3.5 GDP - US (%) 0.4

• 2.6

3.0 1.7 2.0 GDP - Europe (%) 0.3

• 4.0

1.8 1.6

• 0.6

GDP - Japan (%)

• 1.1
• 5.5

4.5

• 0.8

1.4 GDP - China (%) 12.1 9.1 8.6 9.2 8.5 CPI - %YoY (%) 0.1 2.7 1.5 3.1 2.4 FED Funds Rate: End of Period (%) 0.25 0.25 0.25 0.25 0.25 Exchange Rate: End of Period USD/EUR 1.41 1.43 1.34 1.30 1.30 Oil WTI: Annual Average USD/Barrel 99.7 61.8 79.5 95.1 98.5

Forecasts

Adverse Scenario (35%) Units 2008 2009 2010 2011 2012 GDP - World (%) 3.0

• 0.6

4.8 3.7 1.6 GDP - US (%) 0.4

• 2.6

3.0 1.7

• 0.6

GDP - Europe (%) 0.3

• 4.0

1.8 1.5

• 3.0

GDP - Japan (%)

• 1.1
• 5.5

4.5

• 0.8
• 0.1

GDP - China (%) 12.1 9.1 8.6 8.9 7.0 CPI - %YoY (%) 0.1 2.7 1.5 2.6 2.4 FED Funds Rate: End of Period (%) 0.25 0.25 0.25 0.25 0.25 Exchange Rate: End of Period USD/EUR 1.41 1.43 1.34 1.33 1.35 Oil WTI: Annual Average USD/Barrel 99.7 61.8 79.5 95.1 85.3

Forecasts

Base Scenario (65%) Units 2008 2009 2010 2011 2012 EMBI Plus: Annual Average Points 301 307 203.5 194.4 198.3 Exchange Rate: End of Period R$/USD 2.34 1.74 1.7 1.84 1.65 Exchange Rate: Anual Average R$/USD 1.83 2.00 1.8 1.67 1.68 Selic: Annual Average % p.a. 12.54 9.92 10.0 11.71 9.71 Selic: End of Period % p.a. 13.75 8.75 10.8 11.00 9.50 IPCA % p.a. 5.9 4.3 5.9 6.5 4.9 IGP-M % p.a. 9.8

• 1.7

11.32 5.1 4.4

Forecasts

Adverse Scenario (35%) Units 2008 2009 2010 2011 2012 GDP % p.a. 5.2

• 0.3

7.5 2.7 0.9 Household consumption % p.a. 5.7 4.4 6.9 3.8 3.2 Investment (GFCF) % p.a. 13.6

• 6.7

21.3 4.5

• 1.1

Exchange rate (end of period) R$/US$ 2.34 1.74 1.67 1.88 1.78 Exchange rate (annual average) R$/US$ 1.83 2.00 1.76 1.67 1.89 Selic (annual average) % p.a. 12.5 9.9 10.0 11.7 8.3 Real interest rates (IPCA) % p.a. 6.3 5.4 3.9 4.9 4.0 Selic (end of period) % p.a. 13.75 8.75 10.75 11.00 7.50 IPCA % p.a. 5.9 4.3 5.9 6.5 4.1 IGP-M % p.a. 9.8

• 1.7

11.3 5.1 3.8

 International Outlook  Brazilian Outlook  PE Market

The global PE market resumed growth in 2010 after two years of stagnation. Transactions amounted to some US$236 billion in 2010, for 74% growth in the year. Scenarios

Global recovery in private equity

Source: EMPEA, Published 15 November 2011

PE investment by region: 2008-2010 (US$ billion)

*EMEA (Europe/Middle East/Africa)

39.7 83.8 126.6 174.0 305.3 602.5 222.0 61.3 154.6 102.1 30.0 38.1 52.6 58.9 101.9 119.6 87.4 40.2 58.5 41.6 9.1 17.6 11.8 12.6 49.4 41.3 44.7 18.3 28.1 28.2

• 100

200 300 400 500 600 700 800 900 2002 2003 2004 2005 2006 2007 2008 2009 2010 3Q 2011 America EMEA Asia & Oceania

Investors began eyeing emerging markets after 2008 crisis broke out. Key drivers: possibility of sustainable and lasting growth based on

domestic consumption

Scenarios

Strength of emerging markets

Scenarios

Opportunities in emerging markets

Focus: established companies that increase operating margins and consolidate position as market leaders via management shock or access to new sources of capital.

Capital dedicated to PE in emerging markets (US$ billion)

Source: EMPEA, Published 15 November 2011

0.3 0.2 0.5 0.2 2.1 2.5 3.6 0.4 1.1 4.5 0.1 0.2 0.3 2.2 4.3 3.9 14.5 6.6 7.5 12.9 0.1 0.2 0.7 2.7 2.9 4.6 7.7 4.0 3.3 2.9

• 2.0

4.0 6.0 8.0 10.0 12.0 14.0 16.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 3Q 2011 Brazil China India

In 2011 Brazil took the lead in Latin America, receiving more PE investment than Mexico and Argentina combined.

Scenarios

Brazil: leading EM destination for private equity

According to the Emerging Markets Private Equity Association (EMPEA), Brazil received US$4.6 billion in 2011, accounting for 59% of total PE investment in Latin America. According to a global survey conducted in April 2011 by EMPEA and Coller Capital, Brazil is the most attractive market for PE investment in the years ahead, followed by China.

PE investment funding in Brazil (US$ billion)

Source: EMPEA, Published 15 November 2011

0.2 2.1 2.5 3.6 0.4 1.1 4.5 1.3 2.7 4.4 4.5 2.2 5.6 5.7

• 1.0

2.0 3.0 4.0 5.0 6.0 7.0 2005 2006 2007 2008 2009 2010 3Q 2011 Brazil LatAm & Caribbean

International funds such as Blackstone, Actis, Carlyle, KKR, Apax Partners, PIMCO and Apollo have recently come to Brazil (Advent International is the main exception), especially after 2008,

• pening small local
• ffices or acquiring

interests in local funds. Scenarios

Private equity funds in Brazil

PE transactions have grown significantly in only four years, from about 11%

• f M&A in Brazil in 2006 to 42% in 2010¹

Scenarios

Private equity funds in Brazil

PE investment in Brazil (in US$ billion)

Source: EMPEA, Published 15 November 2011 ¹ Fundação Getúlio Vargas/ GVcepe. Institutions may manage more than one fund.

0.3 0.3 0.1 0.5 1.3 5.3 3.0 1.0 4.6 1.7 0.0 1.0 2.0 3.0 4.0 5.0 6.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 3Q 2011

PE players in Brazil vary by average size of investment and type of ownership: (i) large transactions, including leveraged buyouts, with an average ticket in excess

• f US$200 million;

(ii) medium, with investments ranging from US$200 mm to US$50 mm (capital injection and/or 100% takeover); (iii) small, involving less than US$50 mm (capital injection or acquisition

• f equity interest)

55% 16% 14% 15% Financeiro Tecnologia Bens de Consumo Outros 12% 16% 17% 55% Financeiro Tecnologia Bens de Consumo Outros

World PE investment in 2010 by sector Brazil PE investment in 2010 by sector

Source: Dealogic. Breakdown by value of investment. Sectors adjusted using Dow Jones/ FTSE

Scenarios

Private equity funds in Brazil (cont.)

Financial services Technology Consumer goods Others Financial services Technology Consumer goods Others

Growth in the Brazilian PE market can be explained mainly by a number of attractiveness drivers, such as:

The size of the economy Tax incentives

Scenarios

Key attractiveness drivers

(I) (II)

Source: Emerging Markets Private Equity Association, 2010

1 Source: IBGE, 2011

PE investment in proportion to GDP (%)

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% Rússia Brasil China Japão Leste Asiático Índia Israel Reino Unido Estados Unidos % do PIB

USA UK Israel India East Asia Japan China Brazil Russia

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60%

(III) Growth of Brazilian middle class (IV) Fragmentation of Brazilian industry (V) Need for significant investment in infrastructure (VI) Development of capital markets Scenarios

Key attractiveness drivers (cont.)

Fonte: Ministério da Fazenda,

2003 H 2009 H 2014 E 55% 39% 28% 38% 51% 57% 7% 11% 16% Baixa renda Classe média Alta renda

+7 million people Low income Middle class High income

Source: Ministry of Finance, Nov. 2010.

Survey by BM&FBOVESPA shows

services, healthcare and infrastructure

to be the most attractive sectors for investment in Brazil.

Market is betting on investment via PPPs, new concessions and/or privatization. Projects for World Cup and Olympics will contribute to growth in spending on infrastructure, reaching US$906.6 billion by 2018.

Outlook

Investment in practice

Specifically in infrastructure, specialists point to change of government strategy, basically due to improvements in fiscal arena.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Serviços Saúde Infraestrutura Bens de Consumo Educação Óleo & Gás Agribusiness Real Estate Bens de Capital Outros Serviços Saúde Infraestrutura Bens de Consumo Educação

Most attractive sectors for PE investment in Brazil

Source: BM&F, Apr. 2011 Other Capital goods Real estate Agribusiness Oil & gas Education Consumer goods Infrastructure Healthcare Services

Services Health Infrastructure Consumer goods Education

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