By Alexander Ragir
Oct. 19 (Bloomberg) -- Brazilian hedge funds are luring more money than any type of investment pool in the country after record withdrawals last year, offering returns four times the yield from certificates of deposit.
Local hedge funds attracted a net 33.7 billion reais ($19.7 billion) this year through Oct. 15 after posting 54.6 billion reais in redemptions in 2008, preliminary data from the National Association of Investment Banks’ Web site show. Third-quarter inflows surged to 36.3 billion reais, according to the data, which are scheduled to be revised and re-published today by the association known as Anbid.
The Bloomberg Active Index of Brazilian hedge funds, which tracks the performance for 1,171 funds before fees, rose 44 percent this year through Oct. 12 to a record. That’s more than triple the gain of global hedge funds and compares with the 8.61 percent annual average rate that certificates of deposit paid at Brazilian banks.
“We’re on our way to recover last year’s redemptions because it’s the most flexible alternative asset that big banks and private bankers can offer clients,” said Marcelo Serfaty, who oversees 360 million reais as founder of Fiducia Asset Management in Sao Paulo.
A Brazilian equities rally that sent the benchmark Bovespa index up 76 percent so far in 2009 and record low interest rates are also spurring demand for higher-yielding assets.
Brazil’s 326 billion-real hedge fund industry received more money than any fund group in Brazil so far this year, according to Anbid. Funds that invest in asset-backed securities came second with a net inflow of 13 billion reais, followed by fixed- income funds, which recorded 9.8 billion reais in inflows through Oct. 15, Anbid data show.
Recovering Losses
The Bloomberg index of Brazilian hedge funds, known locally as multimercados, fell 15 percent last year, less than half the 41 percent drop of the Bovespa index. The average global hedge fund’s holdings, as measured by the HFRX Global Index, rose 12 percent this year through Oct. 15. The gauge is still 17 percent below a record set July 13, 2007.
“Flows always chase performance,” said Claudio Andrade, co-founder of $1 billion hedge fund Polo Capital Gestao de Fundos Ltda. “That’s what we’re seeing.”
Latin American hedge fund managers are gathering today for the annual Hedge Funds World LatAm 2009 conference in Miami, hosted by Terrapinn Holdings Ltd., to discuss investment strategies with money managers from the U.S., Europe and Asia.
Tighter Regulation
Brazilian multimercado hedge funds are regulated and most are required to return money to clients within five business days of a redemption request under local securities regulations. They must also publish their performance daily.
Hedge funds in the U.S., Europe and Asia don’t have these rules, said Peter Rup, chief investment officer at New York- based Orion Capital Management LLC, which invests in hedge funds. Multimercados can bet on the rise or fall of traded securities and some use leverage, or borrowed money.
Hedge funds “should continue to lead inflows until new high-yield and equity-driven products are developed and the distributors convince their clients to accept less liquidity in order to increase portfolio diversity,” said Serfaty, the former director of investment banking at Banco Pactual SA, a Brazilian bank acquired by UBS AG in 2006 and sold this year to a local banker.
“Multimercados still have daily liquidity and they’ve been used before, so they’re the easiest for the biggest banks to sell to clients,” he said.
Markets
The Bovespa index climbed 3.3 percent last week, its third straight advance. Gafisa SA, Brazil’s second-biggest homebuilder, rose the most with a 12 percent gain. Lojas Renner SA, the largest publicly traded clothing retailer, slipped 2.2 percent for the steepest decline.
The real strengthened for a seventh week, the longest stretch of gains in five years. The currency increased 1.8 percent to 1.71 per U.S. dollar from 1.7410 on Oct. 9.
The yield on the government’s zero-coupon bonds due January 2011 fell 2 basis points to 10.48 percent, according to Banco Votorantim.
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net
10/19/2009
8/27/2009
Growth accelerates in emerging markets hedge funds
Wed, 26 Aug 2009, 15:57
Hedge funds investing in emerging markets far outpaced the average performance in the broad hedge fund universe in the second quarter of 2009, according to data from Hedge Fund Research.
The HFRI Emerging Markets (Total) Index gained 18.92 per cent for the quarter compared to a gain of 9.17 per cent for the HFRI Fund Weighted Composite Index, HFR's broad-based gauge of industry performance.
Through the first six months of the year, emerging markets funds returned 20.18 per cent, the best first half for emerging markets strategies since a 27.4 per cent gain in 1999.
The 2009 emerging markets performance follows the historic decline of 37.26 per cent for the HFRI Emerging Markets (Total) Index in 2008, the worst year of performance on record for emerging markets since HFR began tracking the category in 1990.
In spite of stellar performance, investors continued to withdraw assets from emerging markets during the quarter, with USD2.5bn in capital exiting the regions during the period. This was more than offset by positive market returns totalling USD12.9bn, resulting in a net increase of USD10.4bn in emerging markets assets in 2Q. Assets in hedge funds focusing on emerging markets now stand at USD77bn.
While unquestionably volatile, emerging markets hedge funds have represented one of the most attractive segments of the hedge fund industry when viewed over longer periods of time and through market cycles, according to the HFR data. Since 1990, the category has achieved annualized gains of 13.6 per cent, almost 160 basis points better than the average broad-based hedge fund gain of 12 per cent.
While still the smallest emerging market region in terms of dedicated capital, hedge funds focusing exclusively on Mena have seen a ten-fold increase in AUM over the last five years. There are currently more than 20 hedge funds that invest exclusively in this rapidly growing region, and the HFRX Mena Index has gained 16.9 per cent through the first half of 2009.
After posting the smallest loss in 2008 among all the emerging markets regions, the HFRI Emerging Markets: Latin America Index gained 21.6 per cent in the first half. More than 100 funds invest exclusively in Latin America, representing nearly ten per cent of all emerging markets funds.
The HFRX Russia Index gained 25.3 per cent in 2Q 09, making it the strongest region in terms of quarterly performance. Funds investing in Russia/Eastern Europe manage greater than 20 per cent of all emerging market hedge fund capital.
More than 465 funds currently invest in emerging Asia, representing almost half of all emerging markets funds. After sharp losses in 2008, the HFRX China Index has gained 43.1 per cent YTD through July.
'The hedge fund industry has continued to evolve through the current period of consolidation, and in no place is this evolution more apparent than in funds investing in emerging markets,' says Kenneth Heinz, president of Hedge Fund Research. 'Emerging markets hedge funds are now larger, more sophisticated, more strategically diverse, more structurally transparent and better positioned to offer global investors access to dynamic growth opportunities around the world.'
Hedge funds investing in emerging markets far outpaced the average performance in the broad hedge fund universe in the second quarter of 2009, according to data from Hedge Fund Research.
The HFRI Emerging Markets (Total) Index gained 18.92 per cent for the quarter compared to a gain of 9.17 per cent for the HFRI Fund Weighted Composite Index, HFR's broad-based gauge of industry performance.
Through the first six months of the year, emerging markets funds returned 20.18 per cent, the best first half for emerging markets strategies since a 27.4 per cent gain in 1999.
The 2009 emerging markets performance follows the historic decline of 37.26 per cent for the HFRI Emerging Markets (Total) Index in 2008, the worst year of performance on record for emerging markets since HFR began tracking the category in 1990.
In spite of stellar performance, investors continued to withdraw assets from emerging markets during the quarter, with USD2.5bn in capital exiting the regions during the period. This was more than offset by positive market returns totalling USD12.9bn, resulting in a net increase of USD10.4bn in emerging markets assets in 2Q. Assets in hedge funds focusing on emerging markets now stand at USD77bn.
While unquestionably volatile, emerging markets hedge funds have represented one of the most attractive segments of the hedge fund industry when viewed over longer periods of time and through market cycles, according to the HFR data. Since 1990, the category has achieved annualized gains of 13.6 per cent, almost 160 basis points better than the average broad-based hedge fund gain of 12 per cent.
While still the smallest emerging market region in terms of dedicated capital, hedge funds focusing exclusively on Mena have seen a ten-fold increase in AUM over the last five years. There are currently more than 20 hedge funds that invest exclusively in this rapidly growing region, and the HFRX Mena Index has gained 16.9 per cent through the first half of 2009.
After posting the smallest loss in 2008 among all the emerging markets regions, the HFRI Emerging Markets: Latin America Index gained 21.6 per cent in the first half. More than 100 funds invest exclusively in Latin America, representing nearly ten per cent of all emerging markets funds.
The HFRX Russia Index gained 25.3 per cent in 2Q 09, making it the strongest region in terms of quarterly performance. Funds investing in Russia/Eastern Europe manage greater than 20 per cent of all emerging market hedge fund capital.
More than 465 funds currently invest in emerging Asia, representing almost half of all emerging markets funds. After sharp losses in 2008, the HFRX China Index has gained 43.1 per cent YTD through July.
'The hedge fund industry has continued to evolve through the current period of consolidation, and in no place is this evolution more apparent than in funds investing in emerging markets,' says Kenneth Heinz, president of Hedge Fund Research. 'Emerging markets hedge funds are now larger, more sophisticated, more strategically diverse, more structurally transparent and better positioned to offer global investors access to dynamic growth opportunities around the world.'
8/18/2009
Brazil's Top Money Managers Avert Global Meltdown
Aug-17-2009 | Source: Institutional Investor Magazine
Brazil’s asset managers are breathing a bit easier these days. As of mid-June the nation’s benchmark Bolsa de Valores, Mercadorias & Futuros Bovespa index had climbed 43.6 percent off its March low, which represented a 50.7 percent plunge since its May 2008 high. Jittery investors, both foreign and domestic, yanked money out of the market on concerns that the financial crisis roiling developed countries would stop Brazil’s booming economy in its tracks.
“It appears that the worst is over,” says Demosthenes Madureira de Pinho Neto, São Paulo–based head of asset management and executive director of financial institutions at Itaú Unibanco, the firm created through the merger, completed in March, of Banco Itaú, Unibanco Holdings and Unibanco–União de Bancos Brasileiros.
Brazil is emerging from the global meltdown ahead of many other countries for one simple reason: “We did not have a banking crisis, and that makes all the difference,” says Madureira, pointing out that not a single Brazilian bank failed. Owing to a strict regulatory framework that precludes them from leveraging assets to the extent that their counterparts in the U.S. could — and did — Brazilian banks are generally healthy and well capitalized. “It’s interesting that we just found that out after the crisis,” Madureira notes with a chuckle.
Although worldwide financial turmoil caused a sickening 41.2 percent drop in the BM&F Bovespa index in 2008, the effect on Brazil’s top money management firms was muted because only a small portion of their total holdings is in equities, thanks to high interest rates that make fixed-income instruments more attractive to investors. At BB Gestão de Recursos, which repeats in first place on the Brazil 20, Institutional Investor’s second annual ranking of the nation’s leading managers, stocks account for only $19.5 billion of the firm’s $105.2 billion in total assets under management. That total is down 15.5 percent from one year earlier, in dollar terms; in local currency terms BB Gestão de Recursos and several other firms saw their assets under management increase in 2008. The real fell 24.5 percent against the dollar last year.
Caixa Econômica Federal, which rises one spot to take second place, saw its assets under management slip 12.4 percent in 2008, to $76.3 billion; of that total, only $2.8 billion is in equities. Had the Itaú Unibanco merger been completed by year-end 2008, the combined firm would have secured the No. 2 spot (the position Banco Itaú held on its own last year), with $95.4 billion in total assets, but only $8.2 billion in stocks. As it is, Banco Itaú slips one rung to third place, with $73 billion in assets (25.9 percent less than a year earlier), $7.5 billion of which is in equities.
In fourth place again this year is Bradesco Asset Management, whose assets under management slid 23.7 percent last year, to roughly $64 billion. Less than 10 percent of that total is in stocks. Robert John van Dijk, the firm’s director superintendent, says the avoidance of equities turned out to be a smart move for Brazilians.
“If we consider the negative performance of the Bovespa in 2008, and the small decrease in the total assets of Brazilian funds, we can conclude that the impact of the international crisis in Brazilian funds was very low,” says van Dijk, who is based in São Paulo. Total assets of the Brazil 20 fell just 21 percent last year.
Although the crisis appears to be over, at least in Brazil, it was not without its harrowing moments. “We saw high risk aversion from banks in terms of lending and huge uncertainty about how each sector in Brazil would be affected,” notes São Paulo–based Alcir Freitas, who directs equity research coverage of the banks and financial services sector at Itaú Securities. “Money flow suffered, credit was squeezed, and access to lending became very restricted deeply into the fourth quarter of 2008.”
The Brazilian Central Bank’s Monetary Policy Committee swung into action as soon as government figures showed that the economy had stumbled. In January, after the Brazilian Institute of Geography and Statistics reported that Brazil’s real gross domestic product growth had contracted by 3.6 percent in the October-to-December period compared with the third quarter, the committee slashed the benchmark Selic interest rate by a full point, to 12.75 percent, in an effort to increase liquidity and stimulate growth. The Selic has since been cut three more times, with June’s full-point reduction bringing the rate to its lowest level on record, 9.25 percent, even though Brazil’s GDP contraction of 0.8 percent in the first quarter was much slower than many economists had expected and seemed to suggest that the recession would be short-lived.
José Luiz Rosenberis Cunha, Caixa’s portfolio management superintendent, predicts that the rate will remain low, by Brazil’s standards (the Selic topped 40 percent a decade ago), at least through next year. Although reducing interest rates encourages borrowing and helps promote consumer spending and corporate growth, he says, this approach also puts Brazil’s money managers in the uncomfortable position of having to reconsider the fees they charge — 2 percent is currently the norm — because the lower the rate, the lower the nominal gain and the bigger the impact of the fee on the investor’s account balance.
Bradesco’s van Dijk agrees. “When the interest rate was 20 percent, a management fee of 2 percent represented only 10 percent of the Selic reduction in the fund return. But when the Selic rate reaches 10 percent, the same fee represents a loss of 20 percent,” he explains. “We have savings accounts that yield TR plus a 6 percent fixed coupon, without management fees and without income tax, which means that funds with high management fees yield less than savings accounts.” (TR, or taxa referencial, is the rate used to determine yields on passbook accounts; it is based on the average 30-day yield on certificates of deposits issued by Brazil’s top banks and is adjusted monthly.
Instead of lowering their fees, some fixed-income portfolio managers will choose to chase yield, according to Itaú Unibanco’s Madureira. “In the past it was very easy to manage a fixed-income mandate, because you could invest everything in government bonds and get a decent yield,” he says. Madureira predicts that fund managers will move from plain-vanilla investments to more complex securities, such as derivatives, to boost return and justify what now appears to be a disproportionately high fee.
The low Selic rate may also motivate some investors to allocate more money to Brazilian equities. “It will be a gradual process, but people are starting to realize that if they want more return, they have to take more risk — and that makes the stock market a more attractive investment,” says Madureira.
Brazilian investors had been moving toward equities when the financial crisis hit. The trend began in the middle of the decade, when the BM&F Bovespa index was racking up gains of 26.5 percent in 2005, 34.2 percent in 2006 and 43.6 percent in 2007 (in local currency terms), then it reversed in the fall of 2007 as investors grew worried about collateral damage to Brazil’s economy from the crisis unfolding in the U.S. and other developed markets. The share of money allocated to Brazilian equity funds reached 15.5 percent of the total market in 2007, a record, before dropping back to 10 percent last year, according to Brazil’s National Association of Investment Banks. By last month it had inched up to 11 percent.
Caixa saw its percentage of equities under management fall from 20 percent of its portfolio in mid-2007 to less than 4 percent by year-end 2008, Cunha says; as of last month, it had climbed back to roughly 10 percent. However, that figure reflects recent stock market gains as well as inflows, he notes.
Bruno Pereira, who left UBS Pactual and joined Rio de Janeiro–based asset management firm Leblon Equities in January, says pension funds and retail investors will look more seriously at equities as they watch the returns of their fixed-income investments drop below the yield of savings accounts. “Commercial banks have to face the challenge of developing products that are suitable to the retail segment, and this will gradually lead to additional structural changes in the mutual funds industry and open more room for independent asset managers,” says Pereira, who was the top-ranked analyst in Banking & Financial Services on II’s 2008 All-Brazil Research Team and leader of the first-place troupe in Financial Institutions on the 2008 Latin America Research Team.
Some structural changes are already occurring, as a wave of merger and acquisition activity washes over Brazil’s financial landscape. In addition to the Itaú-Unibanco merger, Bank of New York Mellon Corp. acquired ARX Capital Management in January 2008 and merged it with subsidiary BNY Mellon Asset Management Brasil to form BNY Mellon ARX Investimentos. Banco Santander acquired ABN Amro Holding’s Brazilian operations when it joined Royal Bank of Scotland Group and Fortis in the €72 billion ($98.3 billion) buyout of the Dutch bank, the biggest such deal in history, which closed in July 2008. That same month, BB Gestão de Recursos changed its name from Banco do Brasil Administradora de Ativos to emphasize its asset management operations. And in April UBS announced it would sell its Brazilian financial services unit, UBS Pactual, to BTG Investments, a Rio de Janerio–based boutique founded by André Esteves, a former Banco Pactual managing partner who had sold the firm to UBS in 2006. The $2.5 billion deal is expected to close sometime over the summer.
Some industry observers believe the M&A activity will have only a minor impact on the money management business in Brazil, where the top ten firms already control 88 percent of the assets. However, Madureira says it could pose problems for smaller, independent entities if institutional investors choose to consolidate their investments. “There will still be niche players focused on equity mandates, long and short hedge funds and private equity, but there may be some consolidation in those sectors as well,” he explains.
For the moment, investors and money managers seem more concerned with finding out if the current market rally is sustainable. Caixa’s Cunha believes it is. He predicts that the Bovespa index will end the year up 20 percent and gain an additional 25 percent in 2010, as Brazil’s economy begins picking up steam and investors look to equities — attractively priced after last year’s rout — for returns they can no longer get from fixed-income instruments.
Itaú Securities’ Freitas is also optimistic. “The recovery will not be a V shape,” he says. “It will be slow but, on a relative basis to other countries’, not that slow.”
Brazil’s asset managers are breathing a bit easier these days. As of mid-June the nation’s benchmark Bolsa de Valores, Mercadorias & Futuros Bovespa index had climbed 43.6 percent off its March low, which represented a 50.7 percent plunge since its May 2008 high. Jittery investors, both foreign and domestic, yanked money out of the market on concerns that the financial crisis roiling developed countries would stop Brazil’s booming economy in its tracks.
“It appears that the worst is over,” says Demosthenes Madureira de Pinho Neto, São Paulo–based head of asset management and executive director of financial institutions at Itaú Unibanco, the firm created through the merger, completed in March, of Banco Itaú, Unibanco Holdings and Unibanco–União de Bancos Brasileiros.
Brazil is emerging from the global meltdown ahead of many other countries for one simple reason: “We did not have a banking crisis, and that makes all the difference,” says Madureira, pointing out that not a single Brazilian bank failed. Owing to a strict regulatory framework that precludes them from leveraging assets to the extent that their counterparts in the U.S. could — and did — Brazilian banks are generally healthy and well capitalized. “It’s interesting that we just found that out after the crisis,” Madureira notes with a chuckle.
Although worldwide financial turmoil caused a sickening 41.2 percent drop in the BM&F Bovespa index in 2008, the effect on Brazil’s top money management firms was muted because only a small portion of their total holdings is in equities, thanks to high interest rates that make fixed-income instruments more attractive to investors. At BB Gestão de Recursos, which repeats in first place on the Brazil 20, Institutional Investor’s second annual ranking of the nation’s leading managers, stocks account for only $19.5 billion of the firm’s $105.2 billion in total assets under management. That total is down 15.5 percent from one year earlier, in dollar terms; in local currency terms BB Gestão de Recursos and several other firms saw their assets under management increase in 2008. The real fell 24.5 percent against the dollar last year.
Caixa Econômica Federal, which rises one spot to take second place, saw its assets under management slip 12.4 percent in 2008, to $76.3 billion; of that total, only $2.8 billion is in equities. Had the Itaú Unibanco merger been completed by year-end 2008, the combined firm would have secured the No. 2 spot (the position Banco Itaú held on its own last year), with $95.4 billion in total assets, but only $8.2 billion in stocks. As it is, Banco Itaú slips one rung to third place, with $73 billion in assets (25.9 percent less than a year earlier), $7.5 billion of which is in equities.
In fourth place again this year is Bradesco Asset Management, whose assets under management slid 23.7 percent last year, to roughly $64 billion. Less than 10 percent of that total is in stocks. Robert John van Dijk, the firm’s director superintendent, says the avoidance of equities turned out to be a smart move for Brazilians.
“If we consider the negative performance of the Bovespa in 2008, and the small decrease in the total assets of Brazilian funds, we can conclude that the impact of the international crisis in Brazilian funds was very low,” says van Dijk, who is based in São Paulo. Total assets of the Brazil 20 fell just 21 percent last year.
Although the crisis appears to be over, at least in Brazil, it was not without its harrowing moments. “We saw high risk aversion from banks in terms of lending and huge uncertainty about how each sector in Brazil would be affected,” notes São Paulo–based Alcir Freitas, who directs equity research coverage of the banks and financial services sector at Itaú Securities. “Money flow suffered, credit was squeezed, and access to lending became very restricted deeply into the fourth quarter of 2008.”
The Brazilian Central Bank’s Monetary Policy Committee swung into action as soon as government figures showed that the economy had stumbled. In January, after the Brazilian Institute of Geography and Statistics reported that Brazil’s real gross domestic product growth had contracted by 3.6 percent in the October-to-December period compared with the third quarter, the committee slashed the benchmark Selic interest rate by a full point, to 12.75 percent, in an effort to increase liquidity and stimulate growth. The Selic has since been cut three more times, with June’s full-point reduction bringing the rate to its lowest level on record, 9.25 percent, even though Brazil’s GDP contraction of 0.8 percent in the first quarter was much slower than many economists had expected and seemed to suggest that the recession would be short-lived.
José Luiz Rosenberis Cunha, Caixa’s portfolio management superintendent, predicts that the rate will remain low, by Brazil’s standards (the Selic topped 40 percent a decade ago), at least through next year. Although reducing interest rates encourages borrowing and helps promote consumer spending and corporate growth, he says, this approach also puts Brazil’s money managers in the uncomfortable position of having to reconsider the fees they charge — 2 percent is currently the norm — because the lower the rate, the lower the nominal gain and the bigger the impact of the fee on the investor’s account balance.
Bradesco’s van Dijk agrees. “When the interest rate was 20 percent, a management fee of 2 percent represented only 10 percent of the Selic reduction in the fund return. But when the Selic rate reaches 10 percent, the same fee represents a loss of 20 percent,” he explains. “We have savings accounts that yield TR plus a 6 percent fixed coupon, without management fees and without income tax, which means that funds with high management fees yield less than savings accounts.” (TR, or taxa referencial, is the rate used to determine yields on passbook accounts; it is based on the average 30-day yield on certificates of deposits issued by Brazil’s top banks and is adjusted monthly.
Instead of lowering their fees, some fixed-income portfolio managers will choose to chase yield, according to Itaú Unibanco’s Madureira. “In the past it was very easy to manage a fixed-income mandate, because you could invest everything in government bonds and get a decent yield,” he says. Madureira predicts that fund managers will move from plain-vanilla investments to more complex securities, such as derivatives, to boost return and justify what now appears to be a disproportionately high fee.
The low Selic rate may also motivate some investors to allocate more money to Brazilian equities. “It will be a gradual process, but people are starting to realize that if they want more return, they have to take more risk — and that makes the stock market a more attractive investment,” says Madureira.
Brazilian investors had been moving toward equities when the financial crisis hit. The trend began in the middle of the decade, when the BM&F Bovespa index was racking up gains of 26.5 percent in 2005, 34.2 percent in 2006 and 43.6 percent in 2007 (in local currency terms), then it reversed in the fall of 2007 as investors grew worried about collateral damage to Brazil’s economy from the crisis unfolding in the U.S. and other developed markets. The share of money allocated to Brazilian equity funds reached 15.5 percent of the total market in 2007, a record, before dropping back to 10 percent last year, according to Brazil’s National Association of Investment Banks. By last month it had inched up to 11 percent.
Caixa saw its percentage of equities under management fall from 20 percent of its portfolio in mid-2007 to less than 4 percent by year-end 2008, Cunha says; as of last month, it had climbed back to roughly 10 percent. However, that figure reflects recent stock market gains as well as inflows, he notes.
Bruno Pereira, who left UBS Pactual and joined Rio de Janeiro–based asset management firm Leblon Equities in January, says pension funds and retail investors will look more seriously at equities as they watch the returns of their fixed-income investments drop below the yield of savings accounts. “Commercial banks have to face the challenge of developing products that are suitable to the retail segment, and this will gradually lead to additional structural changes in the mutual funds industry and open more room for independent asset managers,” says Pereira, who was the top-ranked analyst in Banking & Financial Services on II’s 2008 All-Brazil Research Team and leader of the first-place troupe in Financial Institutions on the 2008 Latin America Research Team.
Some structural changes are already occurring, as a wave of merger and acquisition activity washes over Brazil’s financial landscape. In addition to the Itaú-Unibanco merger, Bank of New York Mellon Corp. acquired ARX Capital Management in January 2008 and merged it with subsidiary BNY Mellon Asset Management Brasil to form BNY Mellon ARX Investimentos. Banco Santander acquired ABN Amro Holding’s Brazilian operations when it joined Royal Bank of Scotland Group and Fortis in the €72 billion ($98.3 billion) buyout of the Dutch bank, the biggest such deal in history, which closed in July 2008. That same month, BB Gestão de Recursos changed its name from Banco do Brasil Administradora de Ativos to emphasize its asset management operations. And in April UBS announced it would sell its Brazilian financial services unit, UBS Pactual, to BTG Investments, a Rio de Janerio–based boutique founded by André Esteves, a former Banco Pactual managing partner who had sold the firm to UBS in 2006. The $2.5 billion deal is expected to close sometime over the summer.
Some industry observers believe the M&A activity will have only a minor impact on the money management business in Brazil, where the top ten firms already control 88 percent of the assets. However, Madureira says it could pose problems for smaller, independent entities if institutional investors choose to consolidate their investments. “There will still be niche players focused on equity mandates, long and short hedge funds and private equity, but there may be some consolidation in those sectors as well,” he explains.
For the moment, investors and money managers seem more concerned with finding out if the current market rally is sustainable. Caixa’s Cunha believes it is. He predicts that the Bovespa index will end the year up 20 percent and gain an additional 25 percent in 2010, as Brazil’s economy begins picking up steam and investors look to equities — attractively priced after last year’s rout — for returns they can no longer get from fixed-income instruments.
Itaú Securities’ Freitas is also optimistic. “The recovery will not be a V shape,” he says. “It will be slow but, on a relative basis to other countries’, not that slow.”
8/17/2009
Blackstone to Launch China Fund
Blackstone Group and the government of Shanghai said Friday they are set to launch a private-equity fund that is aiming to raise RMB 5 billion ($732 million) from local investors.
A Shanghai government official said, in a statement, that the objectives of the Blackstone deal include promoting the city as a financial center, as well as upgrading its industrial capabilities.
Blackstone already has strong ties to China. The private equity giant raised a $3 billion stake from China's sovereign wealth fund, China Investment Corp. (CIC), right before it went public in 2007.
CIC was also said to be contemplating a $5 billion hedge fund allocation to Blackstone by the end of this year.
Separately, Blackstone's held its first bond sale this week. Reuters reported that the company sold $600 million in 10-year notes.
A Shanghai government official said, in a statement, that the objectives of the Blackstone deal include promoting the city as a financial center, as well as upgrading its industrial capabilities.
Blackstone already has strong ties to China. The private equity giant raised a $3 billion stake from China's sovereign wealth fund, China Investment Corp. (CIC), right before it went public in 2007.
CIC was also said to be contemplating a $5 billion hedge fund allocation to Blackstone by the end of this year.
Separately, Blackstone's held its first bond sale this week. Reuters reported that the company sold $600 million in 10-year notes.
8/10/2009
Indian equity markets show signs of recovery, report finds
Mon, 10 Aug 2009, 06:24
Indian equity markets are showing signs of recovery, with equity market capitalization expected to exceed 2008 levels in 2009 at USD1.9trn, according to a report by Celent.
However, the report says the market is still some way off the 2007 high of USD3.3trn and that Indian capital markets need to continuously improve to be internationally competitive.
Celent says the Indian market continues to hold promise, as the economy is expected to grow above five per cent even in the current economic downturn. India's leading stock exchange, National Stock Exchange, is ranked third worldwide in terms of the number of equity trades in 2008, and is expected to overtake Bombay Stock Exchange in market capitalization in 2009.
According to the report, the NSE is preferred by foreign institutional investors, while retail investors, domestic brokers, and sub-brokers prefer the BSE. NSE turnover is two times that of the BSE because foreign institutional investors hold on to shares for a shorter period of time than their local counterparts.
In spite of growth, however, the Indian corporate debt market is underdeveloped and lags far behind debt markets in developed and emerging economies worldwide. At an expected turnover value of USD70bn in 2009, it is equal to less than ten per cent of the government debt market.
"The Indian markets are becoming multidimensional. As opposed to being just an equity market growth story, we also have the development of the derivative and the debt markets," says Anshuman Jaswal, Celent analyst and author of the report. "The early success of the currency futures market is another sign of the Indian capital markets' increasing maturity. The reintroduction of interest rate futures is the next eagerly awaited development."
The report also found that the size of the Indian retail equity market has been overestimated by the industry. In the last decade, it has become mandatory to trade using demat accounts. This allows a better estimation of the size of the retail investor market, which is around 15 million. However, if inactive accounts are excluded, this is expected to be closer to eight million - significantly below the industry consensus of 25-30 million.
In the equity derivatives market, volatility has meant that the investors prefer to trade more in index derivatives because they are far more liquid than stock futures and options. Index futures and options now comprise 64 per cent of the trading done in futures and options. Just like equities, the equity derivatives market has also recovered, and the turnover in FY 2010 is expected to be around USD3trn, close to the figure in FY 2008. The growth in turnover and volume has made NSE one of the top ten derivatives exchanges in the world. Having one of the highest growth rates in 2008 (56 per cent), it is expected to do even better in the future. In spite of being more complex a product than cash equity, the equity derivatives market is quite popular with retail investors, and they had more than 50 per cent of the market share consistently throughout the period of June 2008 to May 2009. This bodes well for the breadth of participation in the market, Celent says.
According to the report, interest rate futures are expected to be reintroduced before the end of 2009. The Indian capital markets have been undergoing incremental reform, and once currency futures have established themselves, the Reserve Bank of India, the central bank, the Securities and Exchange Board of India, and the capital market regulator plan to establish new regulations and reintroduce interest rate futures.
For the interest rate futures market to succeed, banks should be allowed to trade, Celent says. Futures failed miserably in 2003 because the banks were only allowed to hedge. As the main participants in these markets, banks should be allowed to trade and build up the demand-side of the market.
Indian equity markets are showing signs of recovery, with equity market capitalization expected to exceed 2008 levels in 2009 at USD1.9trn, according to a report by Celent.
However, the report says the market is still some way off the 2007 high of USD3.3trn and that Indian capital markets need to continuously improve to be internationally competitive.
Celent says the Indian market continues to hold promise, as the economy is expected to grow above five per cent even in the current economic downturn. India's leading stock exchange, National Stock Exchange, is ranked third worldwide in terms of the number of equity trades in 2008, and is expected to overtake Bombay Stock Exchange in market capitalization in 2009.
According to the report, the NSE is preferred by foreign institutional investors, while retail investors, domestic brokers, and sub-brokers prefer the BSE. NSE turnover is two times that of the BSE because foreign institutional investors hold on to shares for a shorter period of time than their local counterparts.
In spite of growth, however, the Indian corporate debt market is underdeveloped and lags far behind debt markets in developed and emerging economies worldwide. At an expected turnover value of USD70bn in 2009, it is equal to less than ten per cent of the government debt market.
"The Indian markets are becoming multidimensional. As opposed to being just an equity market growth story, we also have the development of the derivative and the debt markets," says Anshuman Jaswal, Celent analyst and author of the report. "The early success of the currency futures market is another sign of the Indian capital markets' increasing maturity. The reintroduction of interest rate futures is the next eagerly awaited development."
The report also found that the size of the Indian retail equity market has been overestimated by the industry. In the last decade, it has become mandatory to trade using demat accounts. This allows a better estimation of the size of the retail investor market, which is around 15 million. However, if inactive accounts are excluded, this is expected to be closer to eight million - significantly below the industry consensus of 25-30 million.
In the equity derivatives market, volatility has meant that the investors prefer to trade more in index derivatives because they are far more liquid than stock futures and options. Index futures and options now comprise 64 per cent of the trading done in futures and options. Just like equities, the equity derivatives market has also recovered, and the turnover in FY 2010 is expected to be around USD3trn, close to the figure in FY 2008. The growth in turnover and volume has made NSE one of the top ten derivatives exchanges in the world. Having one of the highest growth rates in 2008 (56 per cent), it is expected to do even better in the future. In spite of being more complex a product than cash equity, the equity derivatives market is quite popular with retail investors, and they had more than 50 per cent of the market share consistently throughout the period of June 2008 to May 2009. This bodes well for the breadth of participation in the market, Celent says.
According to the report, interest rate futures are expected to be reintroduced before the end of 2009. The Indian capital markets have been undergoing incremental reform, and once currency futures have established themselves, the Reserve Bank of India, the central bank, the Securities and Exchange Board of India, and the capital market regulator plan to establish new regulations and reintroduce interest rate futures.
For the interest rate futures market to succeed, banks should be allowed to trade, Celent says. Futures failed miserably in 2003 because the banks were only allowed to hedge. As the main participants in these markets, banks should be allowed to trade and build up the demand-side of the market.
8/06/2009
Emerging mkt ETFs multiply as risk appetite grows
08/03/2009
By Walter Brandimarte NEW YORK, Aug 3 (Reuters) - A dozen exchange-traded funds dedicated to emerging markets have flourished in the first half of this year, and several others are about to be launched, reflecting the huge appetite for high-yielding assets. Testing the boundaries of investor tolerance to risk, many of the new ETFs focus on very specific markets that only few investors used to follow closely -- such as equities in Indonesia, Colombia or Peru, or small-cap companies in Brazil. (See table with recent ETFs launched at the end of story.) While the diversification of the ETF market is a sign that investors are focusing on the economies expected to lead global growth in the next few years, the adoption of more exotic investment strategies could also be an indication of an incipient bubble in emerging markets.
For now, however, fund managers seem to be treading carefully, knowing that the real trial for the new products lies ahead, especially if market turbulence returns. "I think we're quickly approaching the end of the widening of the ETF market, where strategies are getting almost too granular to be attractive," said Jeff Tgornehoj, senior research analyst at Lipper. "Conceivably you could wind up with a small-cap Taiwanese gambling ETF. Really, who needs that? Who wants that?," he added.
At the moment, investors are gravitating toward relatively safer strategies. The Market Vectors Brazil Small-Cap ETF, launched by Van Eck Global in mid-May with focus on smallish companies in household durables, food products and retail, has already amassed $48 million as of the end of June, according to Lipper data. Betting on the strength of Brazil's domestic market and on the future of the country's emerging middle class, the fund has returned 15.7 percent in the same period. "Structurally, cyclically, we think that emerging markets are going to be a very good place for investors to be. You may see us over the next several years offering more emerging market products," principal Jan van Eck said during the launch of the fund. Emerging Global Advisors also has plans to launch 12 ETFs tracking specific emerging-market sectors covered by the Dow Jones Titan indexes -- from basic materials and consumer goods to financials and technology. So far the firm has started three ETFs focusing on energy , metals and mining , and a composite fund that tracks the top-ranked stocks in 10 different emerging-market sectors.
"We have two themes that cover all of our funds: emerging markets growth and nondollar-denominated assets for U.S. investors. Our next theme is raw materials," said Emerging Global Advisors CEO Robert Holderith. "If you believe the dollar is going to weaken, and if you believe all the stimulus in the U.S. and around the world is going to eventually cause some meaningful inflation, then have some commodities and hard assets exposure as well," he said.
Other ETFs allow investors to reach less liquid stock markets in fast-growing countries such as Peru and Colombia -- the Barclay's iShares MSCI All Peru Index Fund and the Global X/InterBolsa FTSE Colombia 20 ETF , respectively. The Peruvian ETF fund gives investors access to 98 percent of the available stocks in Peru's equity market, which has rallied more than 90 percent between March and the beginning of July, according to the country's benchmark IGRA index <.IGRA>. Peru is one of the few Latin American economies expected to grow this year, but the country's equity market is heavily dominated by the mining sector, which makes up about 65 percent of the fund's holdings.
The risk is that, by exposing themselves to specific emerging-market sectors or countries, investors may become subject to additional bouts of volatility in a traditionally volatile market. After rallying more than 70 percent since the beginning of March, emerging equity markets are also probably entering more uncertain territory, as investors scrutinize economic data to confirm whether the recovery will be as strong as it has been priced in.
"I believe there will be good opportunities (in emerging markets) but that clearly you have a rocky road ahead," said Claudio Loser, former Western Hemisphere director for the International Monetary Fund.
Still, a bubble in emerging markets seems unlikely because world financial markets "are a little more sober" after the crisis, Loser argued.
Editing by Kenneth Barry) ((walter.brandimarte@thomsonreuters.com; +1 646 223-6319 ; Reuters Messaging: walter.brandimarte.reuters.com@reuters.net)) Emerging-market dedicated ETFs launched this year: ETF MARKETING NAME TICKER LAUNCH PCT RETURN LAUNCH-JUN 30
By Walter Brandimarte NEW YORK, Aug 3 (Reuters) - A dozen exchange-traded funds dedicated to emerging markets have flourished in the first half of this year, and several others are about to be launched, reflecting the huge appetite for high-yielding assets. Testing the boundaries of investor tolerance to risk, many of the new ETFs focus on very specific markets that only few investors used to follow closely -- such as equities in Indonesia, Colombia or Peru, or small-cap companies in Brazil. (See table with recent ETFs launched at the end of story.) While the diversification of the ETF market is a sign that investors are focusing on the economies expected to lead global growth in the next few years, the adoption of more exotic investment strategies could also be an indication of an incipient bubble in emerging markets.
For now, however, fund managers seem to be treading carefully, knowing that the real trial for the new products lies ahead, especially if market turbulence returns. "I think we're quickly approaching the end of the widening of the ETF market, where strategies are getting almost too granular to be attractive," said Jeff Tgornehoj, senior research analyst at Lipper. "Conceivably you could wind up with a small-cap Taiwanese gambling ETF. Really, who needs that? Who wants that?," he added.
At the moment, investors are gravitating toward relatively safer strategies. The Market Vectors Brazil Small-Cap ETF
"We have two themes that cover all of our funds: emerging markets growth and nondollar-denominated assets for U.S. investors. Our next theme is raw materials," said Emerging Global Advisors CEO Robert Holderith. "If you believe the dollar is going to weaken, and if you believe all the stimulus in the U.S. and around the world is going to eventually cause some meaningful inflation, then have some commodities and hard assets exposure as well," he said.
Other ETFs allow investors to reach less liquid stock markets in fast-growing countries such as Peru and Colombia -- the Barclay's iShares MSCI All Peru Index Fund
The risk is that, by exposing themselves to specific emerging-market sectors or countries, investors may become subject to additional bouts of volatility in a traditionally volatile market. After rallying more than 70 percent since the beginning of March, emerging equity markets are also probably entering more uncertain territory, as investors scrutinize economic data to confirm whether the recovery will be as strong as it has been priced in.
"I believe there will be good opportunities (in emerging markets) but that clearly you have a rocky road ahead," said Claudio Loser, former Western Hemisphere director for the International Monetary Fund.
Still, a bubble in emerging markets seems unlikely because world financial markets "are a little more sober" after the crisis, Loser argued.
Editing by Kenneth Barry) ((walter.brandimarte@thomsonreuters.com; +1 646 223-6319 ; Reuters Messaging: walter.brandimarte.reuters.com@reuters.net)) Emerging-market dedicated ETFs launched this year: ETF MARKETING NAME TICKER LAUNCH PCT RETURN LAUNCH-JUN 30
Brazil Hedge Funds Post Biggest Monthly Inflow in July for ’09
By Alexander Ragir
Aug. 5 (Bloomberg) -- Brazilian hedge funds lured about 8.2 billion reais ($4.52 billion) in July, the biggest monthly inflow this year, as a rebounding economy and record low interest rates increased demand for stocks and other higher- yielding assets.
The investment helped the funds recoup their 2009 losses, according to data through July 30 released by the National Association of Investment Banks. Hedge funds, known as multimercados, received 3.5 billion reais this year through July 30 as the industry began to lure back some of the record 54.6 billion reais of redemptions in 2008, according to the agency.
Investors are turning to the 290 billion reais hedge fund industry in Brazil for better returns as yields on government bonds sink, according to Marcos Duarte at Polo Capital Gestao de Fundos Ltda. Certificates of deposit at the country’s banks pay 8.98 percent annually, down from more than 14 percent in November 2008 after policy makers cut the benchmark lending rate five times to a record low to help pull the economy out of recession, Bloomberg data show.
“Decades of extremely high interest rates caused a disproportionate amount of investments to go to fixed income,” said Duarte, co-founder of the $1 billion Rio de Janeiro-based hedge fund. “So there’s going to be a large amount of money going to risky assets like hedge funds. It’s a tendency that’s here to stay.”
Investors pulled money from Brazilian hedge funds last year after the global financial crisis intensified, sending the benchmark stock index down a record 41 percent and driving up yields on Brazilian bonds. Hedge funds began the year with 8.9 billion reais in redemptions in January, according to the investment banking group known as Anbid. Complete July figures are scheduled to be released today.
The Bovespa stock index had its best July since 1998 this year after earnings exceeded estimates and a smaller-than- estimated contraction for the U.S. economy boosted speculation the global recession is ending.
Brazil’s economy also showed signs of resilience as consumer confidence in July rose to its highest since September 2008, according to the Getulio Vargas Foundation. In June, unemployment unexpectedly dropped and industrial production rose for a sixth straight month.
Brazilian hedge funds can invest across assets and wager on the rise or fall of stocks and other securities. Anbid’s hedge fund classifications were changed this year, making complete performance data is unavailable.
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;
Aug. 5 (Bloomberg) -- Brazilian hedge funds lured about 8.2 billion reais ($4.52 billion) in July, the biggest monthly inflow this year, as a rebounding economy and record low interest rates increased demand for stocks and other higher- yielding assets.
The investment helped the funds recoup their 2009 losses, according to data through July 30 released by the National Association of Investment Banks. Hedge funds, known as multimercados, received 3.5 billion reais this year through July 30 as the industry began to lure back some of the record 54.6 billion reais of redemptions in 2008, according to the agency.
Investors are turning to the 290 billion reais hedge fund industry in Brazil for better returns as yields on government bonds sink, according to Marcos Duarte at Polo Capital Gestao de Fundos Ltda. Certificates of deposit at the country’s banks pay 8.98 percent annually, down from more than 14 percent in November 2008 after policy makers cut the benchmark lending rate five times to a record low to help pull the economy out of recession, Bloomberg data show.
“Decades of extremely high interest rates caused a disproportionate amount of investments to go to fixed income,” said Duarte, co-founder of the $1 billion Rio de Janeiro-based hedge fund. “So there’s going to be a large amount of money going to risky assets like hedge funds. It’s a tendency that’s here to stay.”
Investors pulled money from Brazilian hedge funds last year after the global financial crisis intensified, sending the benchmark stock index down a record 41 percent and driving up yields on Brazilian bonds. Hedge funds began the year with 8.9 billion reais in redemptions in January, according to the investment banking group known as Anbid. Complete July figures are scheduled to be released today.
The Bovespa stock index had its best July since 1998 this year after earnings exceeded estimates and a smaller-than- estimated contraction for the U.S. economy boosted speculation the global recession is ending.
Brazil’s economy also showed signs of resilience as consumer confidence in July rose to its highest since September 2008, according to the Getulio Vargas Foundation. In June, unemployment unexpectedly dropped and industrial production rose for a sixth straight month.
Brazilian hedge funds can invest across assets and wager on the rise or fall of stocks and other securities. Anbid’s hedge fund classifications were changed this year, making complete performance data is unavailable.
To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net;
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