Latin Finance - July/August 2010 - 19

brazil domestic buyside

Scrapping for Mandates
by John Rumsey

he Brazilian pension fund industry may have had a late start in life, but it is already surprisingly large. The total in pension fund assets is some 800 billion reais ($441 billion) according to François Racicot, principal at actuarial consultants Mercer in São Paulo. It is the world’s eighth largest system by assets, adds Ricardo Pena, director at the new regulator for closed funds, the Superintendência Nacional de Previdência Complementar (Previc). Brazil has 500 billion reais in closed funds, he notes. The rate of growth of assets in 2009 was 14.1%, according to data from the Brazilian Association of Closed Pension Fund Entities. Racicot believes that open funds could grow as much as 20%-25% in coming years. The closed sector, in which firms or industries sponsor separate entities to manage funds for employees, accounts for some $280 billion, Pena says. The fastgrowing open sector, which offers a wide number of plans that can be subscribed to by companies or individuals, has racked up 300 billion reais in assets under management, adds Racicot. Market shares for the three principal banks in the open sector at the end of 2009 were Bradesco with a 38% market share, Itaú with 25% and Banco do Brasil with 14%, according to Racicot. External independent asset managers are starting to jostle for a piece of the action. They are especially keen to secure institutional funds, which tend to take a long-term investment view, after a brutal couple of years with fickle retail investors, who fled equity investments amid the stock market crisis of late 2008 and early 2009. Many of the alternatives managers, like Vision, Constellation and Tarpon have successfully marketed to US and European institutional managers, especially to hedge fund of funds, and to a lesser degree

As Brazil’s pension fund industry takes off, independent managers find it hard to wrestle assets from well entrenched retail banks. Most funds pursue conservative mandates.

Butting heads: Independent asset managers are jostling for domestic savings family offices and pension funds. A combination of factors promises to stimulate asset growth. The government has passed new legislation to promote increased diversification of investments; companies are recognizing the importance of supplementary pensions as a human resources tool to attract high-caliber staff; and high investment returns are being fed back into plans, says Racicot. Growth in assets will be well into double digits in coming years, he adds. Denise Pavarina, CEO at Bradesco Asset Management (BRAM), already the country’s largest manager of pension funds, with 175 billion reais under management, is bullish. She is particularly focused on open funds, where she anticipates Brazil’s growth could be 15%18% this year, while closed funds could witness a rise of 10%-12% in assets. States and municipalities are among clients for the bank as they establish new or better funds for workers, she adds.

More Choice, Less Risk

Open funds are taking off because they are so flexible, accepting a far wider range of contributors than closed funds, which are usually company specific. In a competitive marketplace where contributors can shop around for investments, open funds are starting to offer a smorgasbord of options to lure retail clients, say consultants. Moreover, people who have never had complementary pension funds before are signing up. Pena is optimistic about the future for closed funds too. Previc was created as an independent agency at the end of last

July/August 2010

LatinFinance 19

Latin Finance - July/August 2010

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