US and European fund managers have been snapping up stakes in Brazils small, specialist fund boutiques. They are looking to gain exposure to some of the worlds fastest growing financial markets, diversify revenues, and capture the huge Brazilian shift out of bonds to equities and other assets. For their part, Brazilian managers are gaining know-how, technology and access to well-oiled marketing machines.
Most recently, BNY Mellon acquired ARX Capital more than doubling assets under management in Brazil from some $2bn to over $4.6 bn. Earlier last year, Harvard Management Company took a 12.5% stake in Gávea Investimentos at an undisclosed price while the Brazilian subsidiary of Portugals Banif took over Nitor to create Banif Nitor Asset Management. These deals follow Credit Suisses purchase of a stake in Hedging Griffo and UBS take-over of Pactual.
Foreigners are developing a taste for long-term direct investments, not just portfolio plays, says Luiz Fernando Figueiredo at boutique Mauá Investimentos. Interest comes just as local managers branch out into longer-term investments, such as private equity and venture capital. He adds that investment banks are actively looking for acquisitions and likely to lead the next wave of buyers. The concept is solid, he reasons: Demand for funds is outstripping supply with many funds closing for long periods to investment.
In the search, managers look for a proven track-record of sustainable returns and fund raising, local expertise and scalability. Jon Little, vice chairman, asset management at BNY Mellon Asset Management, says Mellon sought a fund with a strong process and identified some 10 possible firms. The list was whittled down quickly. Some were attached to banks and others wanted to remain small while others didnt fit the exacting bill.
Little sees foreign portfolio investors becoming rapidly more sophisticated. The first wave was just to get exposure to Brazil. Now, were seeing demand for good stock pickers and developed research as well as better risk management as the market broadens out, he says. The Mellon operation will look to expand in areas including hedge funds and distressed debt.
There are a number of benefits for Brazilian managers, says Arminio Fraga, founder of Gávea Investimentos, who says they want a name that inspires trust as well as a cross-fertilisation of ideas. The partnership with Harvard gives us access to people to discuss strategies and potential investments, he says. Thats particularly important as Brazils asset management industry has been inward looking because of regulations restricting investment overseas that are now being dismantled, albeit slowly.
Gávea will use proceeds as seed money for planned funds. They include the firms third private equity fund with an eclectic style including illiquid stocks and unusual ideas -- and a long-term investment horizon.