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.