Rodrigo Amaral finds the allure of the fast-growing emerging market and operational hurdles have led Brazilian pension funds to stick to their home-country bias
Three years after receiving the nod to invest abroad, Brazilian pension funds have yet to make any significant moves, preferring instead to reap the benefits of rapid growth at home.
Pension funds were closed out of investing abroad until three years ago, when they were allowed to allocate 3% of their assets to international vehicles. The limit was subsequently increased to 10% in 2010 but very few of the country’s more than 300 funds make any use of it. According to data from Abrapp, the industry association, international investments represent less than 0.1% of their R$545bn ($306bn) in assets.
But Everaldo França, a partner at PPS Previdência, an institutional investment consultancy, said that the situation is beginning to change, albeit the movement is unlikely to take place too fast. “We have been able to remove vetoes to international investments that some clients had in their policies,” França said. “Maybe it won’t be possible to make these plays next year already, but at least this possibility will be part of their investment policies.”
The development of international investments by Brazilian pension funds still faces several hurdles from both strategic and operational points of view.
For starters, Brazilians have faced in recent years a sweet economic moment, with the country growing strong and steadily. The government appears to have enough ammunition to mitigate the most severe effects of a negative external scenario on the Brazilian economy, as it in fact was able to do already in 2008. Additionally, monstrous investments in infrastructure are in the pipeline, creating opportunities for investors to make a killing.
Petros, the pension fund owned by the employees of Petrobras, the oil giant, is a case in point. The R$53bn pension fund has no international investments. Petros’ investment managers told Global Pensions Brazil offers immense opportunities and, as a result, the entity does not see many reasons to take its assets abroad. Petros also believes that the real will remain strong compared to the dollar, and any moves to increase foreign exposure would only make sense as part of a diversification strategy.
Pension fund managers who might like to get into international stock exchanges while they are down would also face the challenge of finding suitable means to meet their needs. The Brazilian legislation establishes that any foreign venture needs to be made via investment vehicles set up in Brazil. Additionally, no individual pension fund can own more than 25% of such vehicles, França explained. “Therefore it is required that at least four pension funds want to make exactly the same play abroad in order to convince an asset manager to create a vehicle for them in Brazil,” he said.
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