Moody’s: Brazilian asset management industry set for further growth

Moody’s outlook for the Brazilian asset management industry remains stable, as the rating agency expects growth in the capital markets and investment sector to continue.

“The Brazilian asset management industry has grown significantly over the past decade. Fundamentals continue to point to positive growth trends, supported by the country’s economic strength, as well as the sector’s modest size as measured by its percentage of GDP. Challenges posed by the global economic slowdown appear to be moderate at present,” Moody’s said.

In a report on the local asset management industry, Moody’s said the Brazilian asset management sector, measured by total net assets, accounted for 40% of GDP in 2011 compared with 25% in 2001, which suggests a growing importance to the country’s economy.

While the ratio for Brazil is well above that of other countries in the region (including Mexico at 8%; Chile at 13%; and Argentina at 1%) it still lags that of some developed markets such as the US and France, suggesting there remains significant potential for growth, the agency added.

The agency expects the pensions segment to become increasingly important to the market, given Brazil’s aging population and a growing awareness of retirement planning.

More foreign asset management companies are also expected to enter the Brazilian market as its attractiveness increases.

“These companies’ strategies may include distribution agreements, acquisitions, partnerships and start-ups. Regardless of their strategy, multinationals are likely to find entrenched local providers the highest barrier to entry, given the concentration in domestic affiliated companies,” Moody’s said.

Meanwhile, Brazilian asset managers will look to expand their operations into other Latin American markets, given the strong economic growth in the region.

“Banks that already have a significant presence in the area are the most likely to lead such expansion,” said Moody’s.

Challenges for Brazilian asset managers include pressure on fees due to the availability of substitute products and concentration of assets under management on domestic affiliated companies. In addition, sustained low interest rates likely would affect investors’ asset allocations since the bulk of AUM are concentrated on fixed income securities, most notably on government bonds,” Moody’s said.

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