‘We raised in spite of the macro, not because of the macro’

Aqua Capital managing partner Sebastian Popik tells Agri Investor how a ‘tsunami’ of political and economic turmoil in Brazil impacted the firm’s recent fundraising efforts.

Corruption scandals currently roiling Brazil’s political class will ultimately strengthen institutions and help improve the country’s business environment, according to a managing partner at Sao Paulo-headquartered private equity firm Aqua Capital.

Echoing comments made last month by Summit Agriculture chief executive Bruce Rastetter, Sebastian Popik told Agri Investor that while a series of corruption allegations surrounding high-level Brazilian politicians did scare some investors, increasing pressure from the public and judiciary will likely lead to less corruption and stronger candidates in the next round of presidential elections, scheduled for October 2018.

“We were ready to start growing at the beginning of the year, then there were some new corruption allegations involving the president that threw everything back by about four or five months, but eventually that got settled. Now, we’re back to where we were in January. We lost some steam, but we’re back on positive footing,” he said, highlighting a return to growth after eight quarters of contraction ending in Q2.

In June, Aqua closed its second fund on a revised hard-cap of $370 million after drawing investors understood to include the $40.3 billion University of Texas Investment Management and Sarona Asset Management’s $300 million fund of funds, among others. The fund had its first sale in March 2016 and will target annual returns of more than 20 percent. Its strategy will target mid-market agribusinesses across the Latin American supply chain, with a particular focus on inputs.

“We raised in spite of the macro, not because of the macro,” he said, characterizing the political environment in Brazil that coincided with the fundraise as a “real tsunami.”

“Investors understood that agribusinesses behave differently than your average Brazilian business. You are selling into the global economy and things are a little bit different than if you are selling locally, cars or shopping centers,” he said.

Making that distinction was very important over the course of the fundraise, Popik said, because many LPs were interested enough to want hear more about the fund’s strategy, though many had already determined that they would not be investing in Brazil for a few years. Brazil-focused funds still in the market, he said, stand to benefit from an improvement in sentiment he has observed of late.

“Now, I think, people are a little bit more than curious. They are interested,” he said. “I don’t think anyone is running to get in, but I think that people are looking and you are going to be seeing some funds close perhaps by the end of the year, but more likely in early 2018.”

Popik said that Aqua’s fund is looking at investments that stand to benefit from changes in consumer demand among wealthy Brazilians that were recently highlighted by the USDA. Such consumers have already played a key role in the success of Aqua’s investment in specialty wine retailer Grand Cru, Popik said, describing continued demand growth despite Brazil’s recession.

He stressed that wealthy consumers in Brazil are open-minded and “not too far behind” the growing health consciousness of counterparts in more developed markets, as reflected by the increasing availability of organic foods, nutraceuticals and high-quality prepared meals.

“The most advanced deal we have in the pipeline is around this trend of increasing consumption of higher value-added products,” he said.