Asset managers: vive la révolution

Brazilian asset managers are embracing change and diversifying away from overnight rates. Yes, we've heard it all before but this time it could really be true.

Traditionally, Brazil’s asset management industry has been dull. Sky-high interest rates made investors risk-averse. The overnight inter-bank rate, the CDI, an almost universal benchmark for funds has been a particular millstone. “It is not rational to take risks when you have, say, 15% risk-free rates,” says Eduardo Bodra, co-CIO at Advis Investimentos, one of a clutch of really successful multimercado funds.

Even when they did dip their toe into riskier assets, Brazilian investors were jittery. They pull money for even very short periods of underperformance abetted by legislation that requires liquidity and the publication of daily net asset values and discourages lock-in periods.

That meant Brazilian boutiques had to be built to survive an exodus of funds. But the game plan is changing. Alexander De Zagottis, CEO and co-CIO of Advis believes the days of lucrative low risk funds are nearing an end. “Low volatility funds won’t do well because it’s hard to charge 2 percent and then not provide high returns.”

Now that the Central Bank-guided overnight Selic rate has fallen to 7.5%, huge risk-free returns are in the past (provided inflation doesn't rear its ugly head).

Asset managers are betting on deeper, richer markets: a more active corporate bond market, more equity choice, more liquidity and more exotic securities such as assets securitized on cash flows from credit cards, land and even court judgements.

The potential is certainly attracting an ever-wider range of global fund managers. New arrivals include PIMCO, best known for fixed-income management, which is opening an office in Rio de Janeiro, its first in Latin America. Meanwhile Templeton, the doyenne of emerging markets managers, has recently launched a Brazilian multi-asset fund to invest across equity, fixed income and FX markets.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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