US and European fund managers are snapping up stakes in Brazil’s small, specialist fund boutiques. They are looking to gain exposure to some of the world’s fastest-growing financial markets, diversify revenues, and capture the huge Brazilian shift out of bonds into equities and other assets. For their part, Brazilian managers are gaining know-how, technology and access to well-oiled marketing machines.
Most recently, BNY Mellon acquired ARX Capital, increasing assets under management in Brazil from some $2 billion to more than $4.6 billion. Earlier last year, Harvard Management Company took a 12.5% stake in Gávea Investimentos at an undisclosed price, and the Brazilian subsidiary of Portugal’s Banif took over Nitor to create Banif Nitor Asset Management. These deals follow Credit Suisse’s purchase of a stake in Hedging Griffo and UBS’s takeover of Pactual.
Foreigners are developing a taste for long-term direct investments, not just portfolio plays, says Luiz Fernando Figueiredo at boutique Mauá Investimentos. Interest comes just as local managers branch out into longer-term investments, such as private equity and venture capital. He adds that investment banks are actively seeking acquisitions and are likely to lead the next wave of buyers. The concept is solid, he reasons: demand for funds is outstripping supply, with many funds closing for long periods to investment.
In the search, managers look for a proven track record of sustainable returns and fund-raising, local expertise and scalability. Jon Little, vice-chairman, asset management, at BNY Mellon Asset Management, says Mellon sought a fund with a strong process and identified some 10 possible firms. The list was whittled down quickly. Some were attached to banks and others wanted to remain small; others didn’t fit the exacting bill.
Little sees foreign portfolio investors becoming rapidly more sophisticated. The first wave was just seeking exposure to Brazil. “We’re seeing demand for good stock pickers and developed research, as well as better risk management as the market broadens out,” he says. The Mellon operation will look to expand in areas including hedge funds and distressed debt.
There are a number of benefits for Brazilian managers, says Arminio Fraga, founder of Gávea Investimentos, who adds that they want a name that inspires trust as well as a cross-fertilization of ideas. “The partnership with Harvard gives us access to people to discuss strategies and potential investments,” he says. That’s particularly important as Brazil’s asset management industry has been inward-looking because of regulations restricting investment overseas that are now being dismantled, albeit slowly.
Gávea will use proceeds as seed money for planned funds. They include the firm’s third private equity fund with an eclectic style – including illiquid stocks and unusual ideas – and a long-term investment horizon.
