RIO DE JANEIRO, Brazil -- Although Brazilian pension funds tend to manage their own money, foreign -- mostly U.S. -- asset management companies have in the past few years begun to set up joint ventures here, having persuaded the funds that more turbulent economic times demand more professional money management.
Brazilian pension funds, which managed nearly all of their money internally in the early 1990s, now allow outside financial institutions to manage 15% of their 91 billion reals ($51 billion) in assets, according to ABRAPP, the national pension fund association. Those institutions include both large local banks and Brazilian branches of U.S. and European banks -- with Credit Commercial de France, Citigroup Inc., Chase Manhattan Bank NA and BankBoston Corp. among the biggest. Banks also manage most of the 154 billion reals ($90 billion) mutual fund market, with brokerage firms managing the rest.
But since 1997, foreign asset managers have come to Brazil, primarily through formation of joint ventures with the Brazilian branches of foreign banks, to get a slice of both the pension fund and mutual fund asset management markets. The biggest such ventures, all based in Sao Paulo, include:
* BCN Alliance Capital Management, a joint venture between Banco de Credito Nacional, Brazil's fifth-largest commercial bank, and Alliance Capital Management LP, New York. The joint venture, set up in July 1997, manages $1 billion in domestic assets for Brazilian investors, 50% of which are pension fund assets.
* BBA Capital Asset Management, a joint venture between Banco BBA-Creditanstalt SA, itself an association between local Banco BBA and Bank Austria Creditanstalt, and Los Angeles-based Capital Group Cos. Inc. The joint venture, which began operating in January 1998, manages $1.13 billion in domestic assets for Brazilian investors, 20% of which are pension fund assets.
* Bradesco Templeton Asset Management Ltd., a joint venture between Banco Bradesco SA and the Franklin Templeton Group. The joint venture, set up in July, manages $340 million in domestic assets for Brazilian investors, 50% of which are pension assets.
* Fleming Graphus Asset Management, the asset management arm of Banco Fleming Graphus (created after the London-based Robert Fleming firm bought control of the local Banco Graphus investment bank). Set up in March 1998, it manages $220 million in domestic assets for Brazilian investors. Eighty percent of its assets are from pension funds.
* Dreyfus-Brascan Asset Management, a joint venture between Philadelphia-based Mellon Bank Corp. and Banco Brascan SA. The joint venture, set up in August, manages $215 million in domestic assets for Brazilian investors, 85%of which are pension fund assets.
These joint ventures offer separate accounts, mostly for pension funds; and mutual funds, mostly for large businesses and individuals.
Foreign asset managers began setting up shop here only in recent years, after the CVM, Brazil's equivalent of the Securities and Exchange Commission, in 1994 instituted a rule allowing authorized, non-financial institutions to manage money in Brazil.
Also attractive to the newly arrived managers is the trend among Brazilian companies of shifting to defined contribution systems from defined benefit ones, leading many companies to set up retirement plans for the first time.
"As Brazilian risk began increasing with the Asian crisis in the second half of 1997, companies didn't want to, under the defined benefit system, have to completely cover the responsibility of how their pension fund performed," said Jose Roberto Penteado de Castro Santos, the commercial director of Bradesco Templeton Asset Management Ltd. "So they began switching to the defined contribution system. . . . This caused employees . . . to pressure pension funds to boost performance targets. And this, along with increased Brazil risk, caused those pension funds to seek more professional asset management help to do so."
Another magnet for foreign asset managers has been the federal government's decision last year to allow states and municipalities to set up pension funds for their employees.
And finally, now that social security reform is under way -- a new social security amendment that reduced government payouts was put into effect in December --the government plans to allow participants some choice in how part of the pension money is managed.
Officials at the new ventures contend they already have provided pension funds with a return rate well above traditional benchmarks. "Firms like ours have shown pension funds they can expect well-above-benchmark returns on their investments," said Roberto Fonseca, the president of BCN Alliance Capital Management.
During January and February, BCN Alliance Capital Management's second-largest stock fund, which is solely for pension funds, posted returns that was 0.51% above its benchmark, the Bovespa index, which for the same period posted 30% nominal returns before devaluation of the real.
But the joint ventures have a lot of work ahead of them.
Most pension funds that outsource their asset management sometimes dividing it among a number of firms both to diversify risk and to see which firm provides the best returns.
And some pension funds outsource asset management only to test whether the outside firms can do a better job. Such is the case with Portus Instituto de Seguridade Social, the pension fund of Brazilian port workers, which recently began moving $50 million of its $400 million in assets to Dreyfus-Brascan Asset Management and others.
"We decided to outsource some of our asset management simply to benchmark the performance of our internal asset managers with those of outside ones," said Decio Santos, financial director. "But I doubt if the results of this test will cause us to greatly increase the amount of assets we are now outsourcing."
