- Fernando Franco Franco, Head of distribution for Americas International at Legg Mason, spoke with Fund Society about business opportunities in Brazil
- Enactment of Directive 550 passed by the Securities and Exchange Commission of Brazil opened up growth opportunities for international feeder funds
- Currently, Brazilian investors with BRL 1 million in investable assets may access structured vehicles outside Brazil which use a local "feeder" fund
- Foreign asset management companies are offering Brazilian investors access to diversified assets classes beyond domestic fixed income
The passage of Directive 550 of the Securities and Exchange Commission (Comissao de Valores Mobiliarios) of Brazil, which went into effect in July 2015, provides greater access to international funds. Although Brazilian investors have opened up to investing in new asset classes in the last few years, Fernando Franco Franco, Head of distribution for Americas International at Legg Mason, recognizes that the main challenge that international managers face in Brazil is the need to inform clients on the value of diversified investments beyond their preference for domestic fixed income.
The enactment of the Brazilian regulation changed the definition of a qualified investor so that foreign asset managers can now distribute onshore funds to “mass affluent” clients, who before could only be served by local fund management companies with a clear bias towards the Brazilian domestic market. Previously, the Brazilian investor needed BRL 1 million to access a single international investment fund. Currently, Brazilian investors with of BRL 1 million in investable assets, can access structured vehicles outside Brazil that use a local "feeder" fund structure.
“With rising inflation and political volatility in recent years in Brazil, the real rates of return are lower, which represents an opportunity to offer clients European, Asian equities and US equities which may offer higher rates of return,” said Fernando Franco.
“Foreign asset management companies are in the process of helping the Brazilian investor get comfortable with international investments. Following the change in regulation, many US asset management companies have partnered with local fund managers to enter the market. Legg Mason has been present in the Brazilian market since 2005 when it bought Citigroup’s Asset Management business. Citi has had a presence in Brazil for more than 100 years..,” he added.
Legg Mason provides vehicles for investing in global equities, fixed income and alternative assets, such as investment in infrastructure and real estate, which allow clients access to a diversified portfolio through customized solutions.
Some of Legg Mason’s affiliates are Western Asset Management a large, global fixedincome provider; Martin Currie, a Scotland based firm which specializes in the active management of global equities; QS Investors, focuses on the quantitative management of global equities and multi-asset funds; RARE, a firm dedicated to investing in global infrastructure through listed securities; EntrustPermal, a specialist in global alternative investment, and a leader in fund of hedge fund investments, and Clarion Partners, a firm dedicated to investment in real estate.
When Legg Mason established its presence in Brazil in 2005 from the acquisition of Citigroup’s Asset Management business and due to Brazilian regulation, its main presence like other international fund managers, was with offshore clients. At that time, the main international players in the country were Merrill Lynch, Prudential, which was acquired by Wells Fargo, and Citigroup Asset Management, now Legg Mason, which had a presence in Chile, Uruguay, Mexico and Brazil.
“Brazil offers a strategic opportunity for global asset management companies because it is a mature and sophisticated market with developed private banking, family offices, institutional and retail investment markets. In my view, perhaps only the United States has a higher level of sophistication than Brazil in its distribution to institutional clients,” said Franco.
In addition to Brazil, Legg Mason has local presence in Chile and is committed to growing its presence in Latin America. “We are actively working in Mexico, Peru, Uruguay and assessing opportunities in other countries.”