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Baron Funds Comments on Kroton Educational SA

August 30, 2012
Holly LaFon

Holly LaFon

From Baron Funds second quarter letter:

We initiated a position in a third Brazilian education investment, Kroton Educational SA, as we believe the company is uniquely well-positioned to benefit from government efforts to establish a strong student financing platform. The Brazilian government is actively seeking to drive increased levels of post-secondary education and thereby a higher skilled workforce. The gross enrollment ratio (GER, a measure of how penetrated post-secondary education is in a country) stands at only 26% in Brazil versus 86% in the United States, and the Brazilian government is targeting a GER of 50% by 2020. Students are highly incented to take advantage of the government's financing offer. Brazil's minimum wage is R$622 per month (U.S. $307), and with even the cheapest postsecondary tuition being over R$400 per month, a post-secondary degree has simply been out of reach for many Brazilians. However, with the new government financing program in place, we believe post-secondary education demand will noticeably strengthen as income potential can increase two to three times with the attainment of a post-secondary degree (one of the highest rates in the world). Kroton currently has the largest exposure to students with government financing among the private players, though we believe the entire industry is poised to

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