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Sovereign Funds Back Brazil’s BTG Pactual

A $1.8 billion investment from China’s CIC and other funds will help BTG build regional and global platform.

BTG Pactual, the Brazilian investment bank with global ambitions, has taken a big step toward fulfilling its goals by enlisting some of the world’s biggest sovereign wealth funds as investors. The São Paolo-based bank announced on Monday, December 6, that it had agreed to raise $1.8 billion by selling an 18.65 percent stake to a consortium that includes affiliates of the Abu Dhabi Investment Council, an investment fund that was spun off in 2007 from the emirate’s giant sovereign fund the Abu Dhabi Investment Authority, China Investment Corp. and the Government of Singapore Investment Corp. Other consortium members include the Ontario Teachers’ Pension Plan Board, a $96 billion Canadian pension fund; J.C. Flowers & Co. LLC, the New York-based investment fund run by former Goldman Sachs & Co. banker J. Christopher Flowers; RIT Capital Partners, Lord Jacob Rothschild’s U.K. investment vehicle; the Santo Domingo Group of Colombian billionaire Julio Mario Santo Domingo; EXOR, an investment company controlled by Italy’s Agnelli family, and Inversiones Bahia, the holding company of Panama’s Motta family. Senior management of BTG Pactual are also taking part in the share purchase.

The investment underscores the growing trade and financial linkages between emerging markets economies, and will help finance BTG Pactual’s rapid growth. The firm’s founder and CEO, former bond trader André Esteves, aims to build the company into the leading investment bank in Latin America, and the leader asset manager in emerging markets globally.

“This is a unique combination of investors,” says Huw Jenkins, a partner in BTG Pactual’s London office who helped bring the consortium together. “There is no other independent investment bank in the emerging markets that has such a diversity of global investors, especially from Asia and the Middle East. It is a sign of the creation of a new financial order. It is not just about developing BTG Pactual in Brazil. The deal will help the bank to create an investment banking platform throughout Latin America.”

The consortium will acquire newly issued shares in the bank, and CIC, GIC, and JC Flowers will gain seats on BTG’s board. As part of the deal, BTG’s existing partners have agreed to maintain their holdings for an extended period.

The agreement aims to help BTG Pactual develop its business in three important way, says Jenkins. The new investors may participate in other bank projects, such as investing in new funds that it sets up. They could mandate BTG Pactual when they decide to invest directly in companies in Brazil or the rest of Latin America. Finally, the funds could refer their portfolio companies to the Brazilian bank when they wish to invest in the region.

"BTG Pactual’s asset management business has largely been made up of Brazilian investors until now,” he says. “There are many opportunities for us to attract investors from the rest of the world and I think that the new, prestigious group of investors will help us considerably in achieving that goal. It is great to have a blue-chip investor from the Middle East, ADIC, on board and that will really help us to strengthen the link between that region and Latin America, for example.”

André Esteves, CEO and partner of BTG Pactual, says: “The capital increase, from this highly respected group of investors, will allow us to consolidate our position as a leading emerging market-based investment bank and asset manager.”

The transaction values Pactual at $10 billion, meaning its value has shot up fourfold since UBS sold Pactual to Esteves’ BTG for $2.45 billion just 18 months ago. Upon the deal’s completion, BTG Pactual will have shareholders’ equity of around $4.3 billion. The bank is forecasting an after-tax profit of $700 million this year, giving it a return on equity of more than 30 percent on the existing capital base of around $2 billion.

BTG Pactual is one of the leading emerging markets asset managers, with over 90 billion reais ($53 billion) under management and administration. Furthermore, it is one of the largest wealth managers in Brazil with 30 billion reais under management.

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