Inversiones / Adquisiciones y Fusiones

Corporate Brazil: Top Managers Seen Extending 77% Asset Holdings.

Brazil’s 10 biggest asset managers, who oversee more than three-quarters of all investments in the South American country, stand to gain even more as a proposed rule change drives smaller competitors out of business.

Brazil’s securities regulator, known as CVM, will probably announce tomorrow an increase in capital requirements that could spur some of the 274 asset managers with less than 100 million reais ($36.7 million) under management to close or seek to merge, according to Samy Dana, a finance professor at Fundacao Getulio Vargas, Brazil’s biggest business school. The change could further concentrate investments among top firms, sustaining fees that are typically higher than outside Brazil, he said.

Brazil’s 10 biggest firms -- including the asset-management arms of Banco do Brasil SA, Itau Unibanco Holding SA and Banco Bradesco SA -- control 77 percent of the 2.6 trillion reais in assets, capital markets association Anbima says on its website. That’s more than twice the 28 percent share controlled by the 10 biggest firms globally, according to New York-based consultant Towers Watson & Co. (TW:US)

“Brazil has about 500 managers -- that’s a gigantic number and clearly there’s not room for that many,” Marcelo Mello, chief executive officer of SulAmerica Investimentos, said in an interview in Sao Paulo Dec. 10. “Mergers and acquisitions among smaller firms will rise, especially after the regulator’s new rules.”

Interest Rates

The number of money managers in Brazil swelled in the past decade as policy makers cut the benchmark interest rate to a record low of 7.25 percent in 2013 from 26.5 percent in 2003, prompting investors to seek higher-yielding alternatives, Mello said.

Clients will probably pull out of managed funds that provide smaller returns in favor of simpler fixed-income investments now that the central bank is tightening rates again, he said. The central bank on Dec. 3 raised the Selic benchmark rate to 11.75 percent after a surprise quarter-point boost in October. Annual (BZPIIPCY) consumer inflation slowed to 6.56 percent in November from 6.59 percent a month earlier, above the top of policy makers’ target range of 6.5 percent, according to the national bureau of statistics.

“As the trend is reversing, more and more investors are noticing that the returns they get are not worth the risk considering the fees,” Mello said. “So, they’re getting back to funds of the bigger, more famous firms.” SulAmerica is the 15th-biggest asset manager in Brazil, according to Anbima’s ranking.

Keeping Fees

The increase in the benchmark interest rate makes it easier for the biggest managers to keep the fees they charge high, according to professor Dana. “If the Selic is low, it’s more interesting for investors to keep their money at a plain savings account, which is not taxed,” he said in a phone interview from Sao Paulo. “As the rate rises, investment funds become more attractive and can charge higher fees.”

Money managers charged retail clients an average of 1.12 percent a year as of last month for fixed-income funds and 2.1 percent a year for stock funds, Anbima said. That compares with an average 0.74 percent for equity funds and 0.61 for bond funds in the U.S. in 2013, according to Washington-based Investment Company Institute.

The press office of Banco do Brasil’s asset management arm didn’t respond to a phone call and an e-mail from Bloomberg News seeking comment. Bradesco’s, Itau’s and Anbima’s press offices declined to comment.

Annual Slide

The Ibovespa (IBOV) has fallen 8.2 percent this year, putting Brazil’s benchmark stock index on course for a second year of losses. That could further drive some investors away from small firms to better-established names, said Alvaro Bandeira, a partner who helps oversee 250 million reais at Rio de Janeiro-based Orama.

Of 373 equity funds with at least $37 million in assets, 78 percent beat the Ibovespa this year, offering an average return of 2.5 percent, according to data compiled by Bloomberg. That compares with an average return of 1.8 percent in the same period among the 307 funds that manage from $18.6 million to $27 million, of which 71 percent beat Brazil’s benchmark stock index.

“Brazilian investors never really had the habit of searching for managers and for lower fees,” Michael Viriato, head of the financial sector department at Sao Paulo business school Insper, said in a phone interview from Sao Paulo. “They just put their money in the funds that are suggested by the managers of their banking accounts where they receive their salaries. Big banks are seen as reliable.”

Rule Change

The CVM rule change, scheduled to be announced tomorrow at 1 p.m. in Rio de Janeiro, will set minimum asset requirements for managers to register as qualified and professional investors. It also includes changes to the way funds release information and requires simpler documentation.

“Many managers are just waiting for the new regulations to make decisions on mergers and acquisitions,” Bandeira said in a phone interview. 


Autor > Bloomberg