Brazil’s growth boom has earned the country a permanent place among those nations considered most important to the global economy. It has resulted in greater affluence for the already affluent and created a more prosperous middle class, both of which have led in turn to an increase in demand for new financial products and investment services.
This dynamic is attracting a growing number of international financial firms seeking to establish themselves in Brazil and grow their businesses there. These companies are particularly keen on launching wealth management businesses, and over the past few months, quite a few big name firms have been either setting up local wealth management efforts in Brazil, strengthening existing platforms or making strategic acquisitions in the country with the goal of offering their products and services to a market that’s slated for even greater growth going forward.
But while launching an onshore wealth management business in Brazil and expanding it over time may well be the right course to take at this point in the Brazilian story, it won’t be all that simple, experts say, not least because Brazilian investors are reputed for their financial sophistication, entrepreneurial spirit and razor-sharp market knowledge. They have high expectations for both quality and delivery, so if these firms want to succeed in growing their businesses, they need to make sure that they remain attractive to their customers and retain their attention by offering cutting edge products and services.
“Brazil is the largest local market in Latin America and we estimate the [high-net-worth] market is growing at around 25% a year,” says Antonio Costa, head of wealth management for Brazil at Bank of America Merrill Lynch. “We believe that there is a lot of scope for major banks to develop onshore platforms in Brazil, but even though Brazil is a big market, the competition is very strong, and given the profile of the Brazilian investor, you really need to be able to differentiate yourself from your competition.”
Bank of America Merrill Lynch recently set up an open architecture, local currency wealth management business in Brazil. The firm is counting on its strong investment and corporate banking capabilities to assure the success of its Brazilian wealth management operations, Costa says, and because it has participated in most local IPOs this year, including deals for Brazil’s national oil company, Petrobras, and Banco do Brasil, the country’s largest public sector bank, it has solid relationships that would cement that effort. The firm also has a global brand name to leverage and a strong business model to ensure its success, he says.
But Bank of America Merrill Lynch is not the only international financial firm counting upon its reputation to establish a strong foothold in Brazil: More and more big name financial firms are looking to get into the country and set up wealth management platforms, and they say they’re there for the long haul.
UBS, for example, recently relaunched its Brazilian wealth management business, which it had first started in 2002 and then had to shutter briefly during the financial crisis. The firm—which has had a presence in Brazil since the 1960s—has also acquired Link Investimentos, the largest independent broker-dealer in Brazil with a strong position in equities, equity research, equity derivatives, exchange-traded FX, fixed income and commodity products.
And another heavy hitter, JP Morgan, has just purchased a majority stake in asset manager Gavea Investments, founded in 2003 by the former president of Brazil’s Central Bank, Arminio Fraga, a highly respected figure in international financial circles. Gavea, with operations in Rio de Janeiro and Sao Paulo, currently has about $10 billion in assets under management.
“Wealth [in Brazil] has been generated from entrepreneurs who are successfully participating in the booming economic environment,” says Fernanda Pasquarelli, who heads up UBS’s local wealth management business in Brazil. “We do anticipate growth in the number of clients, which is in line with the expected economic growth of the country in the next years.”
Brazil has always been an attractive country to financial firms for its sheer size and for its importance to Latin America. Yet when it comes to wealth management, none have really succeeded to date in establishing a lasting and dedicated business, says Bruno del Ama, CEO of asset management company Global X Funds in New York, because the boom and bust cycles that through the decades have been typical of countries like Brazil and Mexico have gone against them. International firms want to invest in countries that have stable economic and political environments in which they can grow and expand their businesses, he says, and for many years, this was just not the case in many Latin American countries including Brazil.
Now, though, things are very different and Brazil has been on a steady course of increased stability and prosperity that looks set to endure both economically, as well as politically, thanks to outgoing President Luis Inacio Lula da Silva, whose eight-year tenure delivered far more than anyone had ever expected. Lula—whose victory in 2002 led many to believe that Brazil would spiral rapidly down a path of Leftist decline—surprised the world by enacting various measures that actually supported business and allowed the private sector to flourish, del Ama says, all the while making sure to address the fundamental social issues that are so important in a country like Brazil, where marked inequalities between the different socio-economic classes could, if not taken care of, greatly undermine growth and progress.
Experts don’t expect to see any reversal of Lula’s policies under Brazil’s freshly elected president, Dilma Roussef (who is the nation’s first female leader). In fact, they expect further growth and greater wealth creation as Brazil expands its role in the global economy.