Private Equity in Brazil: Part 2 of 3
The local recipe

In most markets, private equity has made money three ways: growing the business, widening its margins, and using cheap debt and rising valuations to multiply the equity. In Brazil, two of those three barely function. Long-term debt is scarce and expensive, and multiples rarely expand in a market this volatile. So Brazilian funds learned, out of necessity, to generate almost all of their return from the first lever alone. The interesting development in 2026 is that the rest of the world is now being forced to learn the same discipline.

The clearest evidence comes from a study by McKinsey and Spectra covering 246 Brazilian buyout funds that raised roughly R$196 billion over three decades.¹ It found that about 80% of the value these funds created came from revenue growth at their portfolio companies. Margin gains contributed modestly, multiple expansion actually subtracted from returns, and leverage added almost nothing.¹ In mature markets such as the United States, by contrast, more than 60% of the return typically comes from leverage and multiple expansion combined.¹ These are not two versions of the same strategy. They are different crafts.

The reason is structural. With the policy rate near 15% for much of the past two years, taking on debt at the company level has always been difficult in Brazil, and dangerous when overdone. Managers describe two times EBITDA as a manageable level of leverage locally, against five or six times in the United States, and warn that a company loaded with debt can turn "passively insolvent" if rates jump, not because it was run badly.² Financial engineering, in other words, is not a choice Brazilian funds have declined so much as a tool the market never handed them.

That constraint now looks less like a handicap and more like a head start. A useful shorthand circulating in the industry is that "twelve is the new five": to earn two and a half times your money over five years, the annual EBITDA growth a deal needed a decade ago was around 5%, and today it is closer to 12%, because leverage and multiple expansion no longer do the work they once did.³ As that shift plays out globally, the operational playbook Brazilian managers were forced to master is becoming the playbook everywhere. The winners of the next cycle, as one industry note put it, will be the firms that build systems for operational value creation from day one, not the ones writing the biggest cheques.³

The data on what separates good managers from the rest points the same way. Funds run by firms with a dedicated value-creation team delivered a median return of about 12% a year against 8% for those without, and did so with markedly lower volatility.¹ Specialists focused on a single sector outperformed generalists, at roughly 10.5% against 8.3%, though with more variability.¹ Even leadership stability mattered: portfolios where management changed no more than a few times returned around 12%, while those with churn at the top slipped into negative territory.¹ None of these edges come from the balance sheet. They come from being close to the business.

The market’s strongest performers make the point in their own numbers. Vinci Compass, one of the country’s largest managers, reports historical returns to shareholders of about 46% a year in dollars, with more than 90% of that attributable to earnings growth at its companies rather than to cheaper entry or exit multiples.² Kinea describes a deliberately "tropicalized" model: rather than buying control and installing outside executives, it takes active minority stakes and works through boards and committees, in some cases placing its own partners into operating roles, an approach it calls one with "zero financial engineering."² The craft is operational, and it is local.

For allocators, the catch is dispersion. Brazilian buyout funds returned a median of about 9% a year over three decades, but the top quartile delivered as much as 21%, and only 20% to 25% of funds beat global equity benchmarks.¹ More sobering, fewer than a third of managers sustained distinctive performance from one fund to the next, and only around 12% stayed consistently in the top half.¹ Manager selection, not exposure to the asset class, is the whole game. And time works against everyone: a typical exit of 2.77 times invested capital translates to a 29% annual return over five years but only 12% over ten, which means the lengthening holding periods described in the first part of this series are quietly eroding returns even on assets that are performing.¹

For a foreign fund, this reframes the central diligence question. The issue in Brazil is rarely how to structure and leverage a deal; it is whether a manager can actually operate a business and grow it through a difficult macro cycle. That is also why the funds that tried to copy and paste a leveraged model from abroad tended to leave, while those that partnered with experienced local teams endured. Which raises the question the final part takes up: given this is what works, who is actually doing it, who is betting on Brazil now, and what should a global investor make of the split.