In May 2024, GIC hosted approximately 130 local partners, employees, and GIC alumni from across Latin America (LatAm) to celebrate the 10-year anniversary of the firm’s São Paulo office. As part of the celebration, GIC CEO Lim Chow Kiat and Wolfgang Schwerdtle, Head of the Brazil Office, Head, Direct Investment Group, Latam, and Co-Head of the Sustainability Solutions Group, shared their views on GIC’s growth story in the region, where they are seeing opportunities, and the impact of the current global macro environment on investments in the region.

How big is GIC’s footprint in LatAm relative to your global portfolio?

CHOW KIAT: GIC is a leading foreign investor in LatAm. Our exposure to the region has doubled in the last few years, representing 4% of GIC’s total global portfolio today. The region also makes up 12% of our global infrastructure portfolio and is one of four GIC offices investing in infrastructure.

It’s important to remember that GIC invests in more than 40 countries around the world. In this context, that % is quite significant, and we hope to increase our investments over time as the region continues to develop more policies and vehicles to enable us to deploy capital. It also depends on whether the region is able to expand its opportunity set in terms of quality of assets and partnerships, which I believe is highly likely.

WOLFGANG: We have made significant investments in the region over the last 10 years and have found many good opportunities across different asset classes such as infrastructure and private equity as well as a variety of sectors, including healthcare, education, technology, financial services, and so on. At GIC, there’s no fixed, top-down allocation to regions. If we want to invest in LatAm, we have to find good bottom-up opportunities. Across our different strategies, our teams are looking to connect with the best entrepreneurs, families, and executives to bring us new opportunities to invest in for the long term.

Across LatAm, which sectors hold the most interest for GIC?

CHOW KIAT: Globally, and in LatAm, we invest across all sectors in both public and private markets. We have the flexibility to invest across the whole capital structure and at every stage of a company’s development – be it equity, bonds, or hybrid securities. When evaluating specific assets, we consider whether it offers the kind of risk-reward profile that we think is suitable for our total portfolio.

Certain sectors in LatAm, such as infrastructure, hold particular appeal for us. We have already made substantial investments in this space and hope to do more. Infrastructure is attractive to long-term investors like GIC due to its resilience across macroeconomic cycles, its potential as an inflation hedge, and its low risk of becoming obsolete. We see a significant need for more infrastructure development across the region.

— Lim Chow Kiat, CEO, GIC

WOLFGANG: We aim to increase our investments in the region, across all asset classes. In infrastructure, our key areas of focus include water and sanitation, toll roads, telecommunications, as well as power generation and transmission. One great example is our long-standing investment in Aegea, a Brazilian water supply and sewage treatment company. Over 10 years of partnership, we have worked with Aegea to strengthen its governance, enabling the company to grow its customer base nearly 15-fold, from 2 million to 31 million consumers. Today, it is the largest privately-owned and one of the most efficient water companies in Brazil.

In addition, we invest in real estate, primarily focusing on commercial and industrial properties, as well as shopping malls and residential. Within private equity, our investments span a range of sectors, such as healthcare, education, financial services, technology, and food and retail.

In more recent years, sustainability, including the energy transition and nature-based solutions, has become a growing priority for our teams, not just in Brazil, but globally. In fact, we set up a new group within private equity, the Sustainability Solutions Group, to invest in early-stage technology-based companies that address the climate challenge and in late-stage companies that need growth capital to scale up, which is particularly relevant in emerging markets.

In technology, digital banks and other fintech innovations are critical to advancing the financial inclusion of the large proportion of unbanked people in LatAm. This is one area where we have made numerous investments and see strong long-term tailwinds. A few years ago, GIC led Nubank’s Series G funding round1, a Brazil-based digital bank. With a strong market position, talented leadership, and large runway for growth, we have seen the company expand their footprint globally. Today they operate as one of the largest digital banks in the world.

What opportunities does GIC see in the energy transition as a foreign investor in Brazil?

CHOW KIAT: A large quantum of capital must be mobilised to accelerate the low-carbon transition – estimated at US$126 trillion2 – from now until 2050 to meet the International Energy Agency (IEA)’s net-zero scenario. While climate investments have reached record highs in recent years, they still fall short of what’s needed to reach net zero by mid-century.

LatAm will play a crucial role in contributing to these global transition efforts. According to the IEA3, renewables already contribute 60% of the region’s electricity generation. LatAm also holds more than a third of the global reserves for lithium, copper, and silver – the critical minerals that are key components of climate solutions such as electric vehicles (EVs) or batteries.

As a long-term investor operating across multiple geographies, GIC is committed to financing the decarbonisation of the global economy, including both climate solutions and companies in their transition. We see a lot of potential in this space across the region, particularly in Brazil, which – together with China and India – account for roughly three-quarters of all clean energy investments in emerging and developing economies.4 Brazil’s large renewables sector, rich natural resources, and innovative entrepreneurs collectively present a wealth of opportunities for investors. In addition to LatAm, we have also invested in renewable energy projects over many years in various countries, including India, Japan, the Philippines, and Indonesia.

WOLFGANG: Over 80% of electricity in Brazil already comes from renewable sources5 such as hydro, wind, and solar, and there is significant room to expand the country’s clean energy supply further. Globally, supply chains are being reconfigured due to various factors. Corporates are coming under increasing pressure to green their supply chains and source products and components from locations with lower carbon emissions.

This presents a tremendous opportunity for Brazil. Given its existing green energy infrastructure, the country could become a significant producer of clean energy solutions, including green hydrogen and green ammonia, as well as downstream industrial materials such as green steel, and export them to countries such as the US and Europe.

— Wolfgang Schwerdtle, Head, Brazil Office, Head, Direct Investment Group, Latam, and Co-Head of the Sustainability Solutions Group, GIC

Brazil’s abundance of feedstock for biofuels, such as ethanol, biodiesel, and sustainable aviation fuels, is another area we are exploring for investment. Furthermore, the potential to develop nature-based solutions in the Amazon region and other parts of the country is vast. We are eager to see more investible, scalable, and credible projects which we can deploy capital into.

CHOW KIAT: Global interest in sustainability is intensifying, particularly in light of the increasing occurrence of extreme weather events and natural disasters. In Brazil, we look forward to seeing more policies that would help to develop and regulate this sector. If we can achieve that, and bring more capital and businesses together, we have a unique opportunity to help Brazil make a significant contribution to tackling the climate crisis, while also enabling the country to reap the value creation presented by the climate transition.

What does GIC see as the main investment risks globally and for Brazil?

CHOW KIAT: Recent times have seen inflation rise in major economies, including the US and Western Europe, with knock-on effects on emerging markets. With US interest rates climbing by approximately 5%6, we have also observed weaker currencies in emerging markets. Additionally, a substantial uptick in bond yields and interest rates can dampen the performance prospects for many assets.

Historically, Brazil’s high interest rates have made the operating environment quite challenging for businesses. Yet skilled entrepreneurs in Brazil have managed to navigate these roadblocks successfully, building resilient businesses in the country. So, while we monitor these issues closely, as a long-term investor, we believe an environment of higher interest rates could still produce profitable assets. In some cases, it can even help countries attract capital and enhance export competitiveness through weaker currencies.

One area of concern is whether inflation can be contained over the long term. Even though inflation has dropped compared to a year ago, global investors must consider the following potential longer-term drivers of inflation:

  1. Geopolitics and resulting supply chain shifts, which can create opportunities for some countries, including Brazil, but increase production costs overall, which will eventually feed into inflation.
  2. Increased defence spending due to the proliferation of military conflicts, which will contribute to higher costs.
  3. Climate change and the energy transition, which come with a hefty price tag, potentially offsetting any gains made in combating inflation.
  4. Additionally, we must monitor a country’s fiscal policy, especially if fiscal positions are weak, deficits are large, and debt levels are rising.

At the same time, productivity gains from digitalisation and technologies such as artificial intelligence (AI) can play a role in containing inflation, as do immigration and related policy changes. If LatAm countries continue with their reforms to reduce inefficiencies and mobilise capital, it should also help manage supply-side inflation.