Latin Finance - July/August 2009 - 25

private banking Safdié Wealth Management, which is in a process of re-branding from Safdié Private Banking, says it has also recruited 10 investment advisers this year. On the flip side, Unibanco has shed personnel following its merger with Itaú, and Safra is also understood to have reduced headcount. diversification and complex advice,” he adds. Bankers hope that June’s drop in interest rates to single digits will incentivize a flow back to higher margin hedge funds and other alternative investments. Wealth managers say that the appetite of Brazilians HNWIs for equities has not yet returned, but bankers hope this will also change. “As CDI rates drop, the tendency is that Brazilian investors will increase their demand for riskier assets, as we have been seeing lately,” Jânio Carlos Endo Macedo, director of Banco do Brasil Private Banking, tells LatinFinance. Hedge Funds Losers Itaú targets top three: Salles Bringing the Money Back Wealthy individuals in Brazil alarmed by the external meltdown have shifted substantial offshore wealth – often denominated in US dollars – back home. Domestic private banks claim they are picking up much of this flow, and the challenge for them is to retain the capital. “Clients come to us because we are seen as a safe harbor,” says João Albino, head of Bradesco Private Banking. “I think we will manage to retain our new clients. People do not like shifting between banks all the time.” Bradesco says it has increased its private client base to 6,400 from 5,200 people in December 2007. However, domestic private banks are having trouble monetizing the pickup, as clients are staying in safe liquid havens like certificates of deposit that are only one-third as profitable as hedge funds, according to Bradesco. “Our bank’s AUM has shot up by 46% to 37 billion reais during the past 12 months but profits are up by only 12%,” says Albino. “The average size of a mature account with us is 6.2 million reais; however, new accounts are 20%50% bigger. New clients tend to be those with large tickets and they demand Onshore Brazilian hedge funds have seen massive withdrawals: the equity sub-sector of the multi-mercados industry saw an outflow of 5.4 billion reais during the year to March, while multi-strategy funds with equity and leverage lost 21.6 billion reais, according to the Brazilian Investment Banking Association (Anbid). “Brazil’s hedge funds industry was one of the big losers during the past 10 months. The aggressive hedge funds in Brazil lost around two-thirds of their assets last year,” says Analicia Gil, spokeswoman for Mauá Investimentos. The fund’s Brazil macro-strategy fund saw its AUM drop to around 300 million reais at the start of May from 1.6 billion reais in November 2007. “Many hedge funds suffered from redemptions last year because their performance was down,” Otávio Vieira, director of investments at Safdié Wealth Management, tells LatinFinance. “In Brazil, CDs are a permanent part of any wealthy person’s portfolios, but last year they increased the proportion invested in them.” He recommends more conservative clients buy debentures issued by Telemar, Tractebel and Bradespar, as well as some credit-related products. Vieira also tips real estate assets, as well as letters of credit backed by agricultural contracts, or credit to agribusiness-related entities. Meanwhile, an important debate is taking place in Brazil about whether some clients got into hedge funds without being fully aware of the risks. It is also possible that some financial advisers pushed clients into alternative investments because they earn higher fees. Anbid is considering tightening the suitability rules applied by advisers to ensure that clients are better matched to product risk. One of the other issues in Brazil is that clients are sent updates of hedge fund portfolios on a daily basis, and often compare them to CDI. This makes HNWIs short-term in outlook, when hedge funds are supposed to attract longer-term commitments. Another significant trend in Brazil has been the emergence of family and multifamily offices, according to Polo Capital Management, a Brazilian hedge fund manager. It says that many families were whacked by the financial crisis and lost confidence in private banks. They decided to become more hands-on in the control of their wealth, setting up their own offices or teaming up with other wealthy families. The reduction in interest rates in Brazil is prompting many HNWIs to consider Brazil is safe haven, says Albino where to invest next, since the days of high, risk-free returns with CDs are over. Brazil analysts are concerned that the Bovespa’s rapid ascent since the beginning of this year reflects the herd mentality of foreign institutional investors, and could be as quickly unwound as the commodities bubble last year. One thing is for certain: interest rates below 10% in Brazil are a psychological milestone and could be a great spur to the country’s growing wealth management industry. HNWIs are increasingly flush and will have to get more creative to secure the higher long term returns they crave. LF July/August 2009 LatinFinance 25

Latin Finance - July/August 2009

Table of Contents for the Digital Edition of Latin Finance - July/August 2009