RIO DE JANEIRO - Brazilian pension funds' tradition of managing their own money is being challenged by a worldwide trend toward more professional asset management.
While most Brazilian pension funds still manage money internally, 10% of the $60 billion in total pension fund assets is managed by outside financial institutions.
Those organizations include both local banks and Brazilian units of foreign banks. But increasingly, other asset managers also are setting up shops.
Among managers entering the Brazilian market are:
The Capital Group, Los Angeles, has formed a partnership with the Sao Paulo-based bank BBA Creditanstalt (a joint venture between the local BBA bank and Creditanstalt-bankverein, Vienna) to create BBA-Capital Asset Management to manage pension fund assets and market mutual funds.
The Banco Itamaraty, Sao Paulo, a big local investment bank and pension fund manager, has formed a joint venture with a foreign asset management partner to manage pension and mutual funds. The name of the partner has not been announced.
New York-based Alliance Capital Management has just opened an office in Sao Paulo, also to manage pension and mutual funds.
Arbi Asset Management, Rio de Janeiro, is a recently formed venture of the Arbi financial/industrial group and Garrett Bouton, former president of the Barr Rosenberg Investment Management Co., San Francisco.
Robert Fleming also recently opened a Sao Paulo office and is looking for a local asset management partner to manage pension money.
Competition in the market will be fierce. The Brazilian subsidiary of Credit Commercial de France, Sao Paulo, claims to have the largest share of the market among foreign-owned institutions, with a 15% slice, or nearly $1 billion of the $6 billion in pension fund assets that are managed externally.
And pension funds aren't the only target. Local and foreign commercial and investment banks also manage most of the $65 billion mutual fund market, with brokerage firms managing the rest. Foreign asset managers plan to do private portfolio management for pension funds and mutual fund management mostly for large businesses and individuals.
Foreign managers' interest in Brazil is building because of the access to new potential clients and the chance to launch new products. They also believe an increasingly deregulated economy will allow Brazilian investors in the foreseeable future to invest outside of Brazil. Thus, foreign firms coming to the country now will be building a local client base for their international products.
Foreign asset managers are planning to tap into the pension and mutual fund market with the aid of a local partner - usually a financial institution - to gain local stock market expertise. And they believe associations with local partners tend to be profitable.
This mutual interest is the reason Capital Group formed its partnership with BBA Creditanstalt. BBA-Capital Asset Management, which is a separate unit from the bank, is expected to make its debut this summer with $1.2 billion under management from Brazilian mutual and pension funds formerly managed by BBA.
Roberto Fonseca, general manager of Alliance's new unit - Alliance Capital Management Brasil Ltda., said his firm might seek a local partner and that "managing pension funds of multinationals is one of our top priorities."
Arbi Asset Management's Mr. Bouton, said: "We're going to offer the market new products for pension funds and beat currently established return-on-investment benchmarks." He added his company was in the process of closing asset management arrangements with four different unidentified Brazilian pension funds. "Given how pension funds here tend to mismanage their money, that's something new to Brazil," he said.
Among the reasons for the growing interest by managers in Brazil:
Economic stability and market deregulations under the new administration have improved the investment market climate;
Local pension fund assets are expected to grow quickly in coming years;
A 1994 law by the CVM, Brazil's equivalent of the Securities and Exchange Commission, allows any CVM-authorized, non-financial institution to manage money in Brazil. Before that time, such management was limited to local or foreign financial institutions with operations in the country, like CCF or Citibank;
Social Security reform is under way. And, separately, a new proposal the government has just sent to Congress would allow for the creation of self-directed plans, similar to 401(k) offerings in the United States.
The government now requires pension funds of state-owned companies to undergo performance audits - which is expected to put pressure on them to invest in better performing assets.
The decline in interest rates over the past year has made it necessary for pension funds to shift from investment in fixed-income instruments and put more of their assets into stocks, which require greater managerial skill.
The foreign asset managers hope to attract business from both state bodies and private companies. However, experts see the business opportunity coming first from the private sector, which accounts for only 15% of total Brazilian pension fund assets.