Bradesco Asset Management (BRAM) is proud to receive World Finance’s 2010 award for Best ESG Asset Manager in Brazil. It is the latest in a series of awards BRAM has earned in both its home market of Brazil and internationally for outstanding performance and management.
Standard & Poor’s gave BRAM in April, for the second year in a row, its award for Top Equity Funds Manager in Brazil, in S&P’s annual survey for Brazilian business magazine ValorInveste. Morningstar Japan awarded BRAM’s MUAM Bradesco Government Bond Fund “Fund of the Year 2009” in the High Yield Fixed Income Fund Division, beating out every other high yield fund, Brazilian or not, offered in the Japanese market.
This recognition is the result of years of hard work that Brazilian investors have long known to value. According to the UK magazine The Banker, Bradesco owns the most valuable brand in Brazil, while BRAM’s assets under management in Brazil have grown to over R$183bn ($101bn, as of May 2010).
BRAM is not resting on its laurels. The company is now embarking on an aggressive international campaign. Two offshore funds based in Luxembourg are already open for business, and more are on the way as BRAM expands to let foreign investors take advantage of its expertise in Brazil’s fast-growing and fast-changing economy.
Brazil: Sustainable growth and world class companies
As much of the world struggles with recession and debt, Brazil is growing quickly and reaping the benefits of years of fiscal responsibility. According to BRAM’s macroeconomic department, Brazil’s economy will grow 6.5 percent to 7 percent this year and 4.5 percent in 2011, while the public sector’s net debt will end 2011 at 43 percent of GDP—compared to more than 51 percent at the end of 2002. BRAM’s CEO, Denise Pavarina, says Brazil is on route to 5 percent annual growth over the coming decade. That growth, she says, will be balanced and sustainable, as Brazil is no longer just a commodities story. “Going forward, the drivers of growth will be a wave of investment and the burgeoning middle class, which is creating whole new markets.” Brazil’s entrepreneurs are responding, Pavarina says, as new companies are formed and old ones adapt and consolidate—creating new opportunities for investors. Investments are flowing to upgrade the country’s infrastructure and to develop the pre-salt petroleum reserves, which are among the biggest petroleum discoveries in the world over the past decade.
According to Joaquim Levy, Treasury Secretary of Brazil between 2003 and 2006, and now BRAM’s Chief Strategy Officer, this investment flow will mean a decade of major projects, that will not only turn Brazil into a major petroleum exporter, but include a large range of investments in electricity, ports, roads and railroads, as well as in low-income housing that will create millions of new homes. Major international sport events are also on sight, as Brazil will hold both FIFA World Cup in 2014 and the Summer Olympics in 2016.
“For the last twenty years,” Levy says, “since the economy was opened to foreign competition, Brazilian companies have been competing against the best firms in the world, and they are thriving. There are few if any other emerging markets that can match the diversity and vitality of Brazilian business.” Superior corporate governance is also the norm in Brazil. In June’s meeting of the International Corporate Governance Network, held in Toronto, 71 percent of investors polled chose Brazil as the emerging economy with the best corporate governance.
BRAM is part of this movement, as its parent company, Banco Bradesco—the 19th largest bank in the world—fulfills superior governance requirements in Brazil and internationally: NYSE Level 2, Bovespa Level 1, U.S. GAAP and Sarbanes-Oxley. Banco Bradesco has been a member of the Dow Jones Sustainability Index since 2006, while BRAM adheres to the United Nations’ Principles for Responsible Investment. “BRAM is not about following the latest investment fad,” Levy says, “but about participating in Brazil’s rapid and sustainable growth over the next decade and more.”
Research in all asset classes
Brazil, says Pavarina, offers opportunities in all asset classes. With relatively high interest rates, fixed-income offers excellent opportunities in the short term. “But in the medium and long terms,” she predicts, “interest rates will resume their secular move downward.” That means enormous potential in stocks, real estate, and even corporate debt, still a tiny market in Brazil, but one former Treasury Secretary Levy expects “will be a priority of the next government, whoever wins the upcoming elections.”
BRAM’s research department covers the entire relevant market. Its analysts follow companies responsible for the vast majority of the daily liquidity on the São Paulo Stock Exchange, using a fundamental approach that includes detailed valuation (discounted cash flow method), one-on-one meetings with management, and studying the company’s position in its sector. A key part of this research is also an in-depth analysis of each company’s capital structure.
“We’ve never depended on the ratings agencies,” Pavarina explains. “Doing our own analysis of credit risk is part of our responsibility to our investors and one of our strengths.” This research does not just help avoid negative surprises on equity investments. It also permits BRAM’s fixed-income and hedge fund managers to take advantage of opportunities in corporate debt.
BRAM’s thorough research is especially important in Brazil because of the economy’s dynamism. “The market is well-developed and efficient,” Levy says. “But the economy is changing in so many sectors that, if you’re watching it closely and continuously, you find untapped opportunities.”
BRAM’s edge comes not only from bottom-up company research, but also from top-down macroeconomic analysis. BRAM’s forecasts of inflation and interest rate movements have permitted its managers to successfully time the market.
Research finds its way into the management of the broad spectrum of investment options offered by BRAM, which include government bond funds, short-term bond funds, money market funds, balanced funds, long-short and multistrategy hedge funds, indexed and actively managed equity funds, as well as small cap and sectoral funds. The firm also offers funds of funds, funds focused on asset-backed securities and credit receivables, and private equity funds, as many of Brazil’s most promising companies are not yet public. As part of its ESG responsibilities—and for the potentially superior returns from socially responsible investing—BRAM also offers funds focused on sustainable development and superior corporate governance.
An international performance
The test of any asset manager is in the returns it provides its investors, and here BRAM’s record speaks for itself. In equity, its actively-managed long-only funds beat their benchmarks consistently and significantly. In the five year period ending June 30, 2010, the Bradesco FIA Institutional IBX Ativo fund appreciated 245.6 percent in USD compared to 218.4 percent for its benchmark, the IBrX large cap index. In the same period the Bradesco FIA Selection fund rose 261.2 percent in USD, compared to 215.7 percent for the Ibovespa broad market index.
BRAM’s more conservative fixed-income funds (BRAM FI Renda Fixa and BRAM FI Renda Fixa Bond) have beaten the CDI Brazilian fixed-income benchmark over the past one, three, and five year periods; its more aggressive BRAM FI Renda Fixa Crédito Privato has beaten the CDI every single year from 2006 to the present. Its hedge fund Bradesco FI Multimercado Plus turned in double-digit gains in every one of the last five calendar years, including 2008, when it rose 12 percent.
Following its success in Japan, BRAM is now offering its Brazilian expertise to investors in Europe and the United States, starting with two offshore funds offered through Banco Bradesco’s Luxembourg subsidiary, Bradesco Luxembourg. Both funds are constituted as diversified mutual funds (SICAV) under UCITS III Luxembourg legislation. The Brazilian Equities Fund lets foreign investors take advantage of BRAM’s award-winning equity team to invest in Brazilian companies listed on the São Paulo Stock Exchange. The Brazilian Fixed Income Fund is managed by the same team that won Morningstar Japan’s top award, and it gives BRAM’s managers flexibility to maximize value across Brazil’s debt markets, investing in both sovereign and private-sector real-denominated debt. For investors who wish to avoid currency risk, BRAM will launch later this year a third Luxembourg-based fund to invest in dollar-denominated Brazilian debt.
More Luxembourg-based funds will follow in 2011 and 2012, permitting investors to take advantage of BRAM’s skills across Brazil’s spectrum of investment opportunities. For institutional investors, BRAM already offers separate managed accounts, permitting direct participation in Brazil’s markets. Investors can access these products through Bradesco Luxembourg and Bradesco Securities offices in London and New York. In coming years, BRAM plans to expand further and offer asset management for investments in other Latin American countries.
With its rigorous investment philosophy, top-notch management, adherence to principles of responsible investment, and consistent outperformance, Bradesco Asset Management – BRAM is well-placed to replicate its Brazilian success internationally.
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