Brazil Telecom Fund
Our Brazil Telecom Fund exceeded expectations
As far as we are aware, Cyrte’s Brazil Telecom Fund was the world’s largest fund dedicated to listed equity investments in the Brazilian telecom industry. The basis of our Brazil Telecom Fund is the belief that the telecom sector would profit substantially from the structural re-rating which is driving long-term economic growth in Brazil. Our expectations materialized over the duration of the Fund, which was concluded in 2010. It generated outstanding investment returns for our investors both on an absolute and relative basis.
We identified three factors driving the structural re-rating of Brazil, and these factors played out even better than we expected:
| 1. |
Nutrition transition: the changing consumption patterns of the growing global middle class continue to drive demand for Brazil’s natural resources. |
| 2. |
Power at the bottom of the pyramid: the successful ‘Bolsa’ policy in Brazil reduced inequality and poverty, resulting in higher disposable incomes for the poorer parts of the population. |
| 3. | Brazil as a global hub: the transfer of technology allowed Brazil to transform into a sophisticated economy with international standing, also resulting in the country functioning as a global hub for the region. |
Back in 2007 we believed telecom would profit most substantially from this re-rating because rising incomes mean that people will spend more on telecommunication services, resulting in higher penetration and ARPUs. If we compare forecasts at the beginning with the actual situation at the conclusion of the fund, we can clearly see that the sector grew even faster than predicted, both in terms of mobile subscribers and broadband penetration.
Furthermore, in 2007, we predicted that the low profitability of the sector, partly caused by the high competition, would drive consolidation in telecoms. This consolidation did take place, resulting in the strengthening of the sector in a smaller number of companies.
We have become an established partner for a closed group of leading institutional investors