Brazilian asset management

Everything marked “Brazil” these days is hotter than a churrasqueira at Carnivale. So it is no surprise that the world’s biggest asset management groups – always susceptible to the trends of the day – are super keen to feel the heat. In fairness, South America’s largest country does have the top three attributes considered essential for a booming money management business: a strong economy, deepening financial markets and a growing population.

For US firms, Brazil looks especially hot compared with opportunities at home. For example mutual fund assets under management are expected to grow by about 10 per cent annually, according to Credit Suisse, versus just 2 per cent per year in the US. In four years, 27 per cent of Brazil’s population will be middle-aged – the age bracket when folks like to put their money to work – compared with a fifth now. Meanwhile, geriatric westerners will be increasingly digging into their pension pots.

As with anything red hot, however, Brazil is also difficult to touch. The industry is stitched up by local banks, which pump investment products to retail investors through their extensive branch networks. The biggest completely foreign mutual fund manager for example, BNY Mellon, is ranked 9th by assets under management, less than a tenth the size of market leader Banco do Brazil with $188bn. The sector is also fragmented and competitive, with over 200 independent managers.

As Brazil develops, further barriers to foreign entry – including rules on how much locals can invest overseas – will relax. But what would really help foreign asset managers with existing relationships, as well as those seeking to enter the market, would be for locals to need their global expertise. For that, Brazilian investments need to become less attractive: bond yields fall and local equity market cool off.