RIO DE JANEIRO, Brazil - Brazilian pension funds for the first time are forming investment partnerships with foreigners - most of them in real estate and service-related ventures.
The trend results partly from Brazil's increasing openness to foreign capital and partly from the absence of interested domestic investor partners. Use of these partners also reduces the pension fund's risk in a new investment vehicle because the fund shares the risk. The most recent such partnership was Turner Brasil, a real estate investment venture formed between Turner Construction Co. Inc., a major U.S. construction firm, and Birmann Comercio e Empreendimentos SA, a Sao Paulo real estate developer, which plans to build twin office buildings in Sao Paulo.
Turner Brasil has just sold a 30% stake in one of the $50 million buildings to Fundacao de Economiarios Federais, Brasilia, the $5.19 billion pension fund of the federally owned savings bank, and is negotiating the sale of the remaining 70% stake with three private pension funds and two pension funds of state-owned companies.
In moving toward internationalization, Brazilian pension funds are also diversifying their investments into service-related ventures. The first and biggest so far occurred in July, when Perez Companc, Buenos Aires, one of Argentina's biggest industrial groups, and Citibank NA, took part in a Brazilian-bank consortium - called Investimento Energetico, Rio de Janeiro. The consortium became partners with a consortium of pension funds of Brazilian state-owned companies, called GTD Participacoes, to buy a controlling stake in Espirito Santo Centrais Eletricas SA, a regional electric power company in Vitoria. The government sold its 51% stake in the company for $385 million, half of which came from the pension funds.
And six state and private Brazilian pension funds are investing $15 million in to become sole owners of a "Wet 'N Wild" aquatic park being built in southern Sao Paulo. This project is being set up by Banco Norchem SA, Sao Paulo, a 50-50 joint venture between Chemical Bank and the local, private Banco Noroeste SA, Sao Paulo. Banco Norchem set up the financial structure for the project and sold quotas to investment funds, while Wet 'N Wild is selling the project, the equipment and know-how to build the aquatic park.
"Investing in a well-known brand name like 'Wet 'N Wild', a project organized by a well-known foreign bank like Chemical, gives us a kind of recognized-name guarantee on that investment," said Ademar Colombi, administrative manager of the Associacao Philips Seguradoras Social, Sao Paulo, the pension fund of the Brazilian subsidiary of Dutch-owned Philips NV. The Philips fund is investing $2 million in the aquatic park.
"Because of such a guarantee, other pension funds should follow in our footsteps of investing in projects with a well-known foreign name," he said.
With cash-strapped Brazilian cities soon planning to privatize their water-treatment facilities, Banco Norchem executives also are discussing with Brazilian pension fund officials and U.S., French and Spanish water-treatment operators to form a consortium to buy and run those facilities.
And with Brazilian state governments soon planning to privatize their dilapidated state highways, Sideco, the road-building subsidiary of Macri Group, an Argentine industrial group, is talking with Brazilian pension funds about forming a consortium to buy and upgrade those roads in exchange for collecting tolls.
"Brazilian pension funds are moving toward internationalization by discussing, and in several cases undertaking, projects with foreign companies interested in Brazilian partners to invest here," said Eduardo Machado, project director of the Association of Brazilian Pension Funds, Sao Paulo.
Brazilian pension funds undertaking projects with both foreign and domestic partners will increase the volume real-estate investments linked to performance, rather than those providing fixed returns. Currently, Brazilian pension funds invest 14% of their $55 billion of assets in real estate, compared with 31% in stock and 27% in fixed income.
Until the late 1970s, Brazilian pension funds invested only in real estate projects that provided a fixed return. But in the mid-1980s, the pension funds began to invest in performance-linked real-estate, such as shopping centers.
"Brazilian pension funds, in discussing infrastructure projects with domestic and foreign companies, will tend to invest in more performance-linked real estate projects in the future," said Ricardo Weiss, chief financial officer of Fundacao Assistencial Previdenciaria, Rio de Janeiro, the $762 million pension fund of the government development bank, Banco Nacional de Desenvolvimento Economico e Social. FAPES officials are discussing the possibility of investing in a Disneyland-scale amusement park.