Sao Paulo, Brazil-based FAMA Private Equity has closed its first private equity fund on R$100 million ($56 million; €40 million), just shy of the firm’s target of between R$120 million and R$150 million.
“The fact that we were able raise R$100 million is very exciting because, although slightly below our initial target, valuations of companies have come significantly down… so we believe will be able to accomplish our target of acquiring four to five companies with what we have raised,” managing director John Lin told PEO.
The fund raised capital from roughly 200 limited partners over the course of approximately six months.
Approximately 140 individuals with net worths of R$2 million to R$3 million committed, as well as large family offices and one endowment.
FAMA has examined 130 companies to date across 19 different sectors.
“What we are looking at is to minimise the risk of the fund by investing in non-correlated sectors,” said Lin.
FAMA targets small and middle market companies seeking capital and management skills to enable growth. The firm aims to make companies attractive targets for larger private equity funds that can then help them towards an initial public offering.
The firm is currently focused on examining 11 potential portfolio companies. FAMA is in the advanced stages of pursuing four investments in four diverse sectors: brand licensing, heavy equipment services, retail and oil industry machinery and parts.
The first investment is on track to be finalised in either December 2008 or January 2009.
“We are very bullish that right now we have the perfect timing to acquire companies and also to exit companies down the road,” said Lin.
Company valuations in Brazil have been depressed by the underperformance of the public markets, said Lin. Additionally, tightening credit markets and high interest rates have forced entrepreneurs to look to private equity for capital.
In four to five years, when FAMA begins to exit companies, Lin believes the market will have stabilised and the capital markets will be more positive allowing FAMA to reap the benefits of the stronger economic environment at that time.
FAMA will begin fundraising for its next fund when the debut fund is 75 percent invested, likely after three investments.
“The optimistic expectation would be to start fundraising for the second fund in the fourth quarter of 2009,” said Lin.
Founded in 1993, FAMA Investimentos is an asset management firm with $1.3 billion in assets under management as of the end of 2007. The firm’s core focus is on investing in small and mid cap Brazilian equities.