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The Ugly American, III | Tales of Private Equity

Foreign venture capital and private equity cannot be let off their leash in public parks, according to municipal ordinance here in Brazil.

This is the impression I often get, at least, from contemplating the institutional framework in which the federal government serves as arbitrator of all deal-making and listening to the rhetoric of the powers that be. The current financial crisis is pointed to with a certain smugness of the disastrous results of letting “speculative” capital off its leash.

The Brazilian Association of Venture Capital and Private Equity: inner circle

“Productive” capital is warmly welcomed. Arbitrageurs will be shot on sight. And yet domestic investors are constantly straining at their leashes, hungry to adopt more sophisticated methods and investment instruments in a capital market in which men in smocks still yell at one another all day long.

The U.S. fund Darby — 23.5% owner of the AleSat fueling station network — gets used as a punching bag today by all and sundry in the Rio tip sheet Relatório Reseervado. The fund is said to be standing in the way of making a match with one of three attractive suitors, citing its contractual exit date of 2012. The RR believes the fund is actually counting on a higher ROI if it sells its shares together with the other partners.

AleSat, meanwhile, is said to be considering a purely tactical IPO that would dilute Darby’s bargaining power. On the down side, AleSat owners would not realize 100% of the proceeds of the sale under this scenario. And here I was just recently rereading an old college textbook on the “tragedy of the commons.”

The point is that outsiders are often resented, and speculative ventures viewed, not as the other man’s honest attempt to get the most out of the hand he has than as something shady, requiring institutional barriers to control.

These institutional arrangements are reflected in a certain genteel — or sometimes not so genteel — xenophobia. The press revels in scandals involving domestic subsidiaries of the big multinationals, often whether there are any scandalous facts to scandalize or not. 

I appreciate the concise language and tight reasoning of the RR — said to have been founded by former members of the wild and wooly “festive leftist press” of the late 1960s — even when they are speculating, as here.

But, anyway, I have an opportunity to start writing a little column on “near-shoring” — I have done a lot of social network analysis on this sector — and the subject comes up often.

The key to Brazil is deciphering the alphabet soup to reveal the high-level talks between bankers and cabinet ministers to hash out shared investment priorities. Here, for example, BRDE is a state-owned regional development bnk, while DGF is a small closed-end fund operator invested in modest retail technology innovations.

A little SNA, meanhile gives you a notion of how to separate the wonks from the windbags — there is a a grand-sounding Mercosul E-Commerce Commission, for example, that consists of nothing more than a guy who spent five minutes setting up a blog in Blogger.

In my last stint as columnist — a very short one at $0.05 a word for articles that actually understood the topic, being sugar in that case — I had some friction with the editor, who wanted to know about the supply-chain alliance with the Grand Caymans address and the big advertising budget whose shares were in the process of tanking.

I was more interested in the old-fashioned cooperative which outproduces its rival 5:1 and has some interesting strategic options in the future. I turned out to be right, too. But it was sad to learn — as I learn every day, it seems — how cheap words have become, how divorced from knowing, reasoning and meaning.

It’s all been reduced to “content” now. I have robot on my computer that will generate English sentences when fed certain grammatical constructs. That, too is “content.”