THE ROLE OF PRIVATE EQUITY IN THE DEVELOPMENT OF DOMESTIC CAPITAL MARKETS

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THE ROLE OF PRIVATE EQUITY IN THE DEVELOPMENT OF DOMESTIC CAPITAL MARKETS The World Bank = The International Monetary Fund = The Brookings Institution fifth Annual Financial Markets and Development Conference Álvaro Gonçalves Washington, DC = April, 2003

Agenda Introduction The "current" begin of Private Equity (PE) in Brazil PE in the capital markets biological system A transformative approach! The new speculation condition in Brazil Significant accomplishments; still opportunity to get better Closing comments: time to contribute!

Introduction the "current" begin of PE in Brazil

Introduction: 1) PE is a current practice in Brazil First store in 1993; flood of raising money in 97/98 300 + portfolio organizations (counting early stage) Worldwide emergencies after year 2000 limited leave choices; beginning acknowledge just in 2002/03 International PE firms (fundamentally banks) have ridden the descending cycle: 1998-2002 Regional assets hurt by the national contrasts: troublesome observing and market timing on a territorial premise.

Introduction: 2) Fund raising example

Introduction: 3) Investment movement

A specimen of strong portfolio organizations (regardless of troublesome leave conditions since the year 2000) Cardsystem; Diagnósticos da América; UOL Dixie-Toga; Telemar; Submarino; IT-Mídia Multicanal/NET*; Suape Têxtil; Drogasil* Editora Peixes; Optiglobe; Casa Cor; Chronos Sé Supermercados*; Jornal Lance!*; Camil Gafisa; Método; Odontoprev; Siciliano; Mr Clean Santos-Brasil; América Latina Logística Spring Wireless; Allelyx; Condominio; Microsiga * - PE as of now stripped.

PE in the capital markets biological system: a transformative approach!

The biological community: sections can just accomplish full execution if all pieces are introduced PIPE* (liquidity) Mezzanine Private Equity Venture Capital Seed Capital Public Markets; proprietorship development; aggressiveness Development/Expansion Pre-advertise arrange Start up Corporate Development/Evolution * Private Investment in Public Equities

The new speculation condition in Brazil critical accomplishments; still opportunity to get better

Recent measures: a noiseless change New corporate law: 2001 Stronger minority shareholder rights Novo Mercado - BOVESPA: 2001 New posting fragment with necessities of administration practices; arbitrage; follow along rights; and so on. New direction for Pension Funds: 2001 Transparency; reliable resource division Carteira de Participações : the option resources class

Recent measures: a quiet change (cont'd) CVM: redesigning the Brazilian SEC Organizational upgrades: shorter choice process from 2000 on Independence: 2002 (officers with 5-year commands) Release of the corporate administration manage: 2002 Broad amendment of assets control (refreshing; similarity among classes): 2002/2003 Fundo de Participações: administrative conditions for introducing the correct PE portions (Venture Capital, PE, Mezzanine, PIPE, Fund of Funds): 2003; under open hearing since January.

Developing the PE bunch The neighborhood PE people group is showing signs of improvement composed Brazilian VC affiliation established in 2000 LAVCA: the Latin American VC affiliation was propelled in 2002 to incorporate players and encounters Hearing procedure of the new PE direction: 40 + professionals included; annuity assets, banks and law offices: many proposals; hone dispersal! Corporate Venture additionally assuming its part: Votorantim Ventures, Promon Ventures, Intel Capital, Eastman CEPE-FGV: new focus of PE/VC ponders initiated in 2003 - research and scholarly support!

Pending issues Capital markets tax collection Taxation on values' capital increases: 20% (both private and open values; same for settled salary) Pension reserves execution revelation Similar examination of significant markets: "how to quantify interval PE execution ?" Cultural drive: Long term allotments V here and now financing costs

Pending issues (cont'd) Macro unbalances; loan costs (25 + % p.a.!) Social security framework change under talk (principle driver of government shortages) Recent Congress vote made ready for Central Bank freedom and other imperative measures Rising swelling still a risk Restructuring of vital parts require extraordinary capital assignment Airlines; power; other foundation

Closing comments: time to contribute! Establishment of the capital markets environment is under route in Brazil! Accomplishments and lessons figured out how to be better investigated, dispersed and combined! Private Equity establishes effectively solid in Brazil; delay in ways out will be demonstrated in accordance with LPs' advantage! Notwithstanding, building up PE track record in developing markets is not a conspicuous diversion Good hones/Long term duty/Intense checking/Local group/International association.

Stratus Investimentos is an autonomous Private Equity/Venture Capital firm, had some expertise in interests in Brazil www.stratusbr.com +55-11-3044-4177 São Paulo (SP)

THE ROLE OF PRIVATE EQUITY IN THE DEVELOPMENT OF DOMESTIC CAPITAL MARKETS The World Bank = The International Monetary Fund = The Brookings Institution fifth Annual Financial Markets and Development Conference Álvaro Gonçalves Washington, DC = April, 2003