In this note, I explore some of the policy questions affecting Brazil’s private equity industry that the country must tackle. In Part II, Section A, I begin by asking the threshold question of whether the Brazilian government should play an active role in encouraging the growth of the private equity industry. I resolve that Brazil should play an active role in encouraging the industry’s growth to encourage several possible benefits to the real economy. Private equity may benefit the economy by providing job growth and job preservation, improved access to credit for firms that would not otherwise have funds, and improved access to talented managers. Further, private equity may be an effective screening mechanisms for selecting good companies. In Part II, Section B, I ask whether Brazil has successfully encouraged the growth of the private equity industry, or has set policies that stifle its growth. By applying Ribeiro et al.’s “supply” and “demand” factors, which lead to private equity growth in the Brazilian context, I conclude that Brazil has done a commendable job creating a regulatory environment that bolsters the growth of the private equity industry, but that lowering interest rates and the costs associated with starting a business would help the industry to expand further. In Part III, Section C, I ask whether the Brazilian government should play an active role in regulating its nascent private equity industry, and conclude that Brazil should proactively regulate the industry, in certain areas, because the benefits of good governance outweigh the costs associated with added regulatory compliance. In Section D, I ask which actors are best suited to create and enforce private equity regulations—government agencies or self-regulating agencies. I conclude that the Brazilian Securities and Exchange Commission does not, at present, provide sufficient oversight of the private equity industry, and that the self-regulatory agencies, like ANBIMA, ABVCAP, and BM&FBOVESPA cannot adequately enforce their own regulations due to conflicts of interest. In Part III, I critique Brazil’s current regulatory policies. I ask which risks Brazilian regulators should focus on mitigating, and try to assess their effectiveness at regulating each risk. In eight sections, I explore different risks that a robust private equity industry could pose for Brazil: (1) increased leverage in the capital markets, (2) market abuse problems, (3) conflicts of interest, (4) transparency risks, (5) overall market efficiency risks, (6) market access risks, (7) systemic risk to capital markets, and (8) risks for qualified investors. I conclude that of these risks, Brazilian regulators should focus primarily on market-abuse risks, conflicts of interest, and transparency issues, and that, at present increased regulation for the other enumerated risks is either unnecessary or impractical. Part IV Concludes.
Shannon Guy, Regulation of Private Equity in Brazil: Policy Questions Presented and Critique, 2 MICH. J. PRIVATE EQUITY & VENTURE CAPITAL L. 309 (2013).