LatinFinance - May/June 2014 - 38

INSTITUTIONAL
WEALTH
BRAZIL

Brazilian investors are taking a more cautious approach to risk after
sharp swings in the Selic last year. But diversification is still slow to take hold.
By Katie Llanos-Small

Easy does it

38 l atinfina nce.com - May/June 2014

TRICKY SITUATION: Brazil's central bank
governor Alexandre Tombini has had to
stage an abrupt shift in policy rates

JEAN-PIERRE GIL
WESTERN ASSET

"CREDIT HAS REALLY
BEEN GROWING IN
THE PORTFOLIOS,
IN GENERAL, BOTH
INSTITUTIONAL AND
RETAIL, IN THE PAST
10 YEARS OR SO,
MARKEDLY IN THE
PAST FIVE YEARS"

pressing priority. Statistics from pension
fund association abrapp show that 61% of
the system's assets were in fixed income
instruments at the end of September - a
level at which it has hovered for several
years.
But funds are nevertheless diversifying
their investments - albeit gradually.
funcef, for example, has kept its fixed
income allocation broadly stable, but is
looking at ways to spread risk in the rest
of its allocations. it has 12% of its portfolio
in structured instruments, including
infrastructure investments - a level that it
could rise to 15% in the coming years.
"We have indexed and non-indexed
equity strategies, and a strategy for
structured assets, whether they be
traditional instruments or infrastructure
investments," maurício marcellini, funcef's
investment director, tells LatinFinance.
"What we've been doing last year and this
Source: AP

quick glance at the
upward shift in Brazilian interest rates last
year is enough to realize it was a painful
year for the country's investors. after
hovering at 7.25% for five months, the Selic
rate began to climb steadily in april 2013.
Since then, it has risen 375 basis points -
and some analysts reckon it could go even
further, to hit 11.25% this year.
at the same time, the main stock
exchange index, the iBovespa, fell 15.5%
over the course of 2013. the two factors
conspired to hit fund returns sharply.
Brazil's largest pension fund, Plano 1,
managed by Previ, returned 6.52% last
year - down from 12.62% the previous
year. funcef, another of the country's
largest pension managers, returned 6.98%,
well below its actuarial target of 5.5% over
inflation.
"not only did volatility go up a lot,
especially after the start of the taper talk
by the fed in may to June," says nicolas
Saad, portfolio manager at Western asset
management in São Paulo. "also, the
performance of [Brazil's fixed-income]
indices was very poor due to the overall
increase in interest rates: not only in the US
- but also the consequence of this for Brazil
was a very strong, very sharp increase in
interest rates."
the result has been that pension
funds and insurance companies are
more carefully scrutinizing risks in their
portfolios. But with Brazil's sovereign
January 2016 instrument paying 12%,
shifting to other investments is hardly a

©REUTERS

A
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