Brazil’s actuarial reality

Travelers arriving at the Galeao International Airport for an evening flight out of Rio de Janeiro are often disheartened to be directed to the back of a long, long security line, which often mean travelers waiting an hour or more before getting scanned and admitted.

Rio: more visitors
coming soon

Not even the locals can get used to these delays. One evening last month, a Brazilian man at the back of the security line in Galeao was overheard telling his companion in sarcastic English: “Welcome to Brazil”.

In the not-too-distant future, Brazil will be welcoming a huge influx of tourists who will be coming to view and participate in the 2014 World Cup and then, two years later, the Summer Olympics in Rio. Leading up to these two monumental events and the world attention that they will bring the host country, Brazilian authorities and the general public know they have much to accomplish by way of building and improving infrastructure, including a number of airports badly in need of expansions. Add to this Brazil’s enviable economic growth, and it is easy to see why infrastructure has become such a high priority for policymakers in the country.

Although it was billed as a private equity trade association summit, delegates at last month’s ABVCAP conference in Rio heard again and again from presenters about the dire need for infrastructure investment in Brazil. Not all of this capital can come from government or government-affiliated entities, such as the Caixa Economica Federal and BNDES. And so both of these groups have mandates to attract foreign capital to Brazilian infrastructure projects.

Of course, a great deal of capital managed by private equity-style infrastructure groups around the world comes from public pensions, primarily pensions in the US and Europe. Although Brazil is home to some very large pensions, a very small percentage of this has made its way into private equity funds, let alone infrastructure funds.

Going forward, fund managers who take pains to package their infrastructure opportunities in a way that makes sense for Brazilian pensions will be rewarded with potentially billions of dollars in enthusiastic investment capital 

Going forward, however, changes in the Brazilian economy may make pension fund managers here much more amenable to the risk/reward profile of infrastructure funds. At the ABVCAP conference, a panel discussion between investment officers at several powerful Brazilian pension funds made clear that these institutions need alternative assets in order to hit their actuarial targets. In addition, there is a sense among these investors that Brazilian pension capital could be better put to work building the Brazil of tomorrow.

Fabio de Oliveira Moser, chief investmenet officer of PREVI, the largest pension in Latin America, noted that Brazilian pensions accounted for 16 percent of the country’s GDP, and as such could have a “big impact” on development. He noted that pensions such as his had long relied on fixed income to meet investment goals. This was facilitated by Brazil’s formerly sky-high interest rates. Now that rates have come down dramatically, “it has become really necessary to change strategies to meet our goals”, said de Oliveira.

In embracing strategies such as real estate, de Oliveira said pensions would need to learn how to “make risk part of our daily lives”.

Going forward, fund managers who take pains to package their infrastructure opportunities in a way that makes sense for Brazilian pensions will be rewarded with potentially billions of dollars in enthusiastic investment capital. And they may help make the World Cup and the Olympics even more thrilling events in the process.