Home Brokerage Significant Changes Are Afoot Within Brazil’s Asset-Management Sector

Significant Changes Are Afoot Within Brazil’s Asset-Management Sector

by internationalbanker

By Valerie Hernandez, International Banker

 

It began as a hedge-fund boom. With rock-bottom interest rates during the global pandemic and Brazil’s affluent class desperately searching for yields, fund managers emerged in large numbers, exiting from their banking-industry jobs to set up their own operations in major Brazilian cities. However, as interest rates began their steep ascent in 2021, the lure of much safer government bonds vis-à-vis risky equities and corporate debt was too attractive for investors to ignore, and those new hedge funds consequently struggled to retain client assets. But with the strong growth achieved by Brazil’s economy and after political stability was restored last year, Brazil’s asset-management sector is showing significant promise for sustained growth this year.

Indeed, Brazil’s wealth-management sector experienced strong growth in 2023 as its assets under management (AUMs) swelled by 8.3 percent during the first six months to 460.4 billion reais managed by 141 independent companies, according to the Brazilian Financial and Capital Markets Association (ANBIMA), which counted the opening of three dozen new wealth firms during this period, including several founded by former bankers of troubled lender Credit Suisse. “A large number of professionals left their organisations to set up their investment-advisory houses and ended up creating a structure of multifamily offices,” Fernando Vallada, ANBIMA’s director, told Bloomberg in early November. “It’s a natural evolution of the market.”

Economic factors partly explain the rush to Brazil’s wealth-management space by major banks and investment firms alike. With inflation having moderated to just 3.16 percent by June, in line with the central bank’s target range of 3.25 percent, +/-1.5 percent (although prices have accelerated above 4 percent since then), and with high interest rates on their way down again along with a moderately appreciating currency (real) versus the US dollar, the increasing stability offered by Brazil’s macroeconomy is rare among emerging markets.

“We have been surprised by how long interest rates have been held high. Now that inflation is falling, the prospect of continued rate cuts—which will provide an avenue for both the economy and Brazilian equities to recover—is improving,” Mark Williams, co-portfolio manager of the Emerging Markets Dividend Growth Fund at Somerset Capital Management, told wealth-management and private-banking publication WealthBriefing in November after the Central Bank of Brazil (Banco Central do Brasil) had announced three 50-basis-point cuts from 13.75 percent to 12.25 percent, prompting a market rally soon afterwards. “Within our Brazilian holdings in the Somerset Emerging Markets Dividend Growth Fund, we hold oil exposure (Petro Rio), internet services (Locaweb) and a department store operator (Lojas Renner), which all benefit from falling rates either indirectly via improved domestic consumption or directly through lower debt costs,” Williams added.

Stability on the political front has also proven reassuring to investors, particularly given the election of President Luiz Inácio Lula da Silva (popularly known as Lula) in October 2022, which marked a significant departure in policy approach from that of his predecessor, Jair Messias Bolsonaro. The shrewd appointments of moderate figures in key positions, as well as the expansion of the cabinet from 23 ministers to 37, with many of the incoming faces belonging to opposition parties, initially unnerved markets, according to Schroders, but the policy outlook has since “moderated”.

“There was much debate as to whether the new administration would be more moderate, as seen in Lula’s first term (2003-2007), or more interventionist, as in his second term (2007-10),” Schroders acknowledged in an August 2023 outlook for Brazil’s investment landscape, noting that the appointment of Geraldo Alckmin as vice president “went some way to easing market concerns”. Alckmin, a former governor of the state of São Paulo, was also the 2018 presidential candidate for the main opposition party to Lula’s Workers’ Party. “Another factor which alleviated market concerns was the Workers’ Party’s lack of a majority in Congress,” Schroders added.

With bumper agricultural harvests and a record trade surplus reining in Brazil’s current account deficit, further lifting Brazil’s appeal, the Latin American heavyweight has become strategically appealing to investors globally. Indeed, firms have been observing the attractive opportunities that Brazil now presents and have responded by expanding aggressively into Latin America’s biggest market. Swiss firm Mirabaud Group, which manages US$35 billion in assets globally, for example, recently confirmed its intention to triple the amount of assets it oversees in the country over the next two years. Having opened an office in Brazil in 2019, Mirabaud managed around one billion reais (US$197 million) in Brazil and worked with 70 families by October 2023, the firm’s country chief, Urbano de Moraes, told Bloomberg. Through its offshore business, it managed an additional US$3.8 billion for Latin American clients, including Brazilians.

“We have a lot of room to grow organically,” Moraes told Bloomberg, adding that the firm’s seventh-generation family member and current managing partner, Nicolas Mirabaud, had already visited Brazil to meet current and prospective clients in Sao Paulo and Rio de Janeiro. According to Eric Hatisuka, chief investment officer for Brazil, Mirabaud raised 100 million reais for a fixed-income fund and is growing another fund focused on private credit. “Brazil is full of opportunities, in construction, agribusiness, technology startups and services,” Moraes added. “In a market of this size, you create space for companies to grow and, with that, attract big players to the country.”

Seismic structural changes to Brazil’s wealth-management industry are also underway, mainly via investment firms’ mergers and acquisitions (M&As) to achieve scale within the industry. South Korean financial-services group Mirae Asset Wealth Management, for instance, announced its partnership with local wealthtech (wealth technology) firm Velexa to bolster accessibility for Brazilians to global financial markets.

“We believe this partnership reinforces our mission of creating a better world through investment. By combining our international expertise with Velexa’s cutting-edge technology, we aim to redefine the investment landscape in Brazil, providing our clients with unprecedented access to global financial markets,” Ricardo Nicola Tantulli, chief operating officer at Mirae Asset Wealth Management, observed. Tamara Kostova, chief executive officer of Velexa, meanwhile, acknowledged that Brazil “is a very exciting market because of the increased demand in independent investment platforms, and the increased interest in global markets” and that Mirae’s strong position in Brazil “will be further amplified through this partnership, providing products that the end-users really want”.

Swiss wealth manager Brainvest also announced a merger with the Brazilian multi-family office KPC Consultoria in March 2023. Brainvest manages more than US$3 billion in assets; together, Brainvest and KPC now manage more than US$4.25 billion in assets but will continue to operate as independent brands. Jointly, they will provide financial advisory and investment-management services from Brazil, the United States and Switzerland. The US-based registered investment advisor Merchant Investment Management, which acquired a minority position in Brainvest in 2021, also owns a 20-percent stake in the newly merged entity.

Julius Baer is also seeking to expand aggressively in Brazil, particularly since UBS’s acquisition of Credit Suisse, which has opened up opportunities for the Swiss private bank. It has completed a wave of high-profile hires to pursue its lofty goals in the local market. Among them was a team of nine people from Grimper Capital, including Sylvio Castro, the former chief investment officer of Credit Suisse in Brazil, who went on to found Grimper in 2021 but then shut down amid the intensifying wars for businesses, clients and talent in the local market. “I see a very interesting opportunity in the centre-west of Brazil and Rio de Janeiro, where the new money is being made at the moment,” Castro told Euromoney in May 2023. “We see a lot of potential there.”

With a recent Oxfam report finding that the country’s six richest men own the same combined wealth as the poorest half of the total population, while the country’s wealthiest 5 percent own the same as the remaining 95 percent, Julius Baer is also keen to use its platform to address the rife inequality throughout Brazil. ANBIMA’s Vallada, who is also chief executive officer of Julius Baer Brazil, is hoping his family office can help tackle this problem, mainly by raising awareness among clients and recommending charitable causes that can be impactful.

“Where you have such concentration, it’s really important to have privacy in terms of information related to wealth—50% of the financial assets in Brazil are concentrated in a tiny section of the population,” Vallada noted in September 2023. “We have lots of issues to resolve. As wealth managers, we have a responsibility to raise this with our clients. We can help with investment opportunities, but we can also help with philanthropy.”

 

Related Articles

Leave a Comment

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.