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Posted on May 28, 2012
Face to face
Bradesco AM chief Joaquim Levy tells
Domestic growth is strong thanks to the government Brazil’s Bolsa Familia, a welfare programme that pays poor families for sending their children to school, is renowned in development circles as one of the biggest and most effective programmes for poverty reduction in the world.
It is also a key reason, according to Joaquim Levy, chief executive of Bradesco Asset Management, to consider investing in the country. With nearly 100 per cent of 15-16 year olds attending school thanks to the Bolsa Familia, “this is investment in human capital”, he says. “It creates a middle-class. This is where the productivity will come from, and where the consumer demand will come from.”
He expects increasing numbers of international investors to look to Brazil (and other emerging markets ) in the future. “It’s very important to have investment in areas where there is growth,” he says. When he talks to investors abroad, they react positively to two things. “They like the story [that Brazil is growing] and they like the process, the security, the infrastructure that goes with a big house.” Bram is Brazil’s third largest asset manager (after Banco do Brasil and Itaú-Unibanco) with R$265bn [Brazilian reales] in assets under management.
The size and history of Bram and its parent bank Bradesco is reassuring for investors, particularly institutional investors, according to Mr Levy. “People have to have a comfort level.” He is confident the infrastructure and governance of Bram is up to standard, while the team culture that gives rise to a deferred pay compensation structure “doesn’t go down too badly with investors these days”.
Although family offices are in some cases taking the plunge, many pension funds are listening to his spiel, even perhaps agreeing with his thesis, but not making any allocations to Brazil, let alone Bram. Less than 4 per cent of Bram’s AUM is in offshore funds.
“We are mindful this is a long-term game,” he says calmly. He harks back to his experience as head of Brazil’s national treasury, when a large part of his job was simply to travel the world explaining the national debt management plan and infrastructure investment programme to investors. The communication campaign, along with Brazil’s growing track record in sticking to the plan, helped change the country’s image to outsiders. Talking about Bram’s products is a similarly long-term education strategy, says Mr Levy.
“99 per cent of what I tell people, they already know,” he admits. “Now is the right moment to be here, in a very serene way explaining how we can add value.”
Mostly that seems to be in giving access to Brazilian markets, which Mr Levy says offer huge opportunities.
“It’s worth looking at the level of diversification you can get within the country – our infrastructure sector is the size of Mexico.”
With such a strong belief in Brazil’s economy, it is perhaps predictable that Mr Levy is unimpressed by the concept of general emerging markets funds that lump Brazil in with others across the world.
“In a portfolio, you want to know where your risks are coming from,” he says. He claims the Brazilian financial infrastructure and regulation is sufficiently developed that investors need not worry about them. “In a time when there are so many risks, it is good to reduce the number of risks you have to worry about.”
Back in Brazil, Bram is looking to broaden the range of its capabilities. Currently around 15 per cent of its assets are in equities and the rest in fixed income, largely in Brazilian government debt and investment grade credits.
“Fixed income has been king for a long time in Brazil,” says Mr Levy. Although that is unlikely to change any time soon, he sees an ongoing shift in the make-up of the market. “The big change is people moving more and more to the credit market as interest rates drop.” Brazil’s central bank recently slashed its benchmark interest rate to 9 per cent from 12 per cent.
“The environment is attractive to both issuers and investors,” says Mr Levy. “Companies are now looking to capital markets to fund them – that’s a good thing.”
As the market matures, companies are issuing longer-dated bonds, he adds. “We see the tenor of paper moving from three to five years, then to seven and even 10.” Where corporate bonds were traditionally issued with a floating interest rate, many of them are now inflation-linked, he says, showing a degree of confidence that inflation will not climb back to its historically high levels.
Investors are keen to put their money in “credits linked to infrastructure or [capital] investment”, investments that benefit from government support in the form of tax breaks, says Mr Levy. “We’re planning to expand our offering to this new class of credit.”
Although some investors see the level of government intervention in markets as a reason to be wary of Brazil, Mr Levy seems to be entirely comfortable with it, perhaps unsurprisingly for a man with a long career in politics.
Another concern investors have is the impact of a possible slow-down in Chinese growth on the Brazilian economy, which has been bolstered in recent years by Chinese demand for commodities. Mr Levy dismisses this concern not by dismissing fears of a China crash but by claiming Brazilian companies are more domestically focused than investors fear.
“I would be more worried about what it means for global financial markets than about its effect on Brazil,” he says. Exports are just 10 per cent of Brazilian GDP, he explains, with commodities constituting only half of that.
Brazil has “a strong domestic market, which is more and more resilient because of increasing education”, he says, and we are back to talking about the Bolsa Familia and Brazil’s notable success in poverty reduction.