What is going on in emerging markets Eduardo Penido Brazilian Economic Guide GDP of approximately US$ 2 trillion Sovereign risk rated as Investment Grade (S&P, Fitch and Moody’s) Dynamic and diversified economy with an entrepreneurial business environment, Brazil is among the largest producers and exporters in the world of: coffee, soybeans, corn, cotton, sugar, orange juice, beef, poultry meat, iron ore, aluminum steel products, commercial aircraft, cars, paper pulp, ethanol as well as having strong civil construction and shipbuilding industries, among others Self-sufficient in oil and the fifth largest hydroelectricity generator in the world Vigorous services sector, particularly the financial sector Large, solid, strong and sophisticated financial and capital markets Receptive and welcoming treatment of foreign investments Back 2 Brazilian Economic Figures Net Foreign Direct investment (US$ Bilion) 14 12 10 8 6 4 2 0 (%) 2007 2008 2009 2010 2011 GDP Growth (%) 2005 2006 2006 2007 2008 2009 2010 2011 Financial System Credit Operation (%GDP) (% GDP) 8 7 6 5 4 3 2 1 0 -1 2005 2007 2008 2009 2010 2011 105 95 85 75 65 55 45 35 25 15 50 45 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 (jul) Financial System Credit Operation (% GDP) Asset Backed Securities (R$ bilion) 14 12 10 8 6 GDP Growth 4 2 0 2005 2006 Industrial Production / IBGE (% p.y) Initial Public Offering – IPOs (US$ Billion) 4 Brazil is an Important Player in Asset Management Big Numbers in a Large Market Diversified and sophisticated products Evolution 2008/2010 AUM - USD 951 billion 406 Asset Management companies 14% 5% 17% 3% 23% 24% 10% Among the World Top 10 6th largest in the world - bigger than: Italy, Spain and Germany 11% 19% 17% 29% 28% 85% of Latin America 2008 Source: ANBIMA up to Oct/10 Set10 Others Credit Multimercado – Brazilian Absolute Return Funds Equity Money Market Fixed Income Other funds: PE/ VC, Retirement, Real Estate, OffShore, FX. Source: ICI Worldwide Mutual Fund Assets as 2009:Q4 Local presence of the main investment consultants Numerical data refers only to Domestic Brazilian funds. Many managers use several offshore funds that mirror local vehicles (but those are not considered in the above data) Next 5 Hottest Place to Invest now Economic stability ( investment grade status granted by three rating agencies) Positive economic conditions for the next decade Maintenance of regulation and constitutional rights Consolidated democracy Regional importance Well developed local markets (maturity during the crisis) 6 Hottest Place to Invest now Brazil should see the largest increase in new investors in the next two years – 19% of EM PE investors expect to begin investing in Brazil, while just 3% of current investors plan to reduce or stop investment in the country. Emerging PE markets in Asia will see the greatest expansion in commitments from existing investors in the next two years – 44% of investors plan increased exposure in China, 28% in India, and 26% in other Asian emerging PE markets. 7 Private Equity & VC in Brazil Highlights: Young and dynamic industry (the next frontier in capital markets) Committed capital growing at fast pace (over 50% from 2005/08) US$ 11 billion invested Over 500 invested companies Committed capital amounting to US$ 27 billion (2006/08) Local pension funds with 24% of committed capital Mostly pure blood buyout funds (no leverage) Some mezzanine funds and few PIPEs Equivalent to 1.7% of GDP versus 3.7% US and 4.7% UK 8 Private Equity & VC in Brazil (key figures) SOURCE OF CAPITAL (%) 90 80 70 60 50 40 30 20 10 0 MAIN VEHICLES Own Capital 76,8 66,1 PE Investment Fund Investment Companies 8% 10% 38% 33,9 23,2 Investment Funds Others 20% 6% 2008 2009 2008 2009 VC Offshore Companies Foreign capital Domestic Capital 3% 15% INVESTMENTS (USD$ million) 2008 25000 20000 15000 10000 5000 0 2009 22 12 4 Commited Capital Invested Capital 9,6 2,7 Non-invested Capital 7 3,6 5,5 Non-informed 9 Real Estate Funds AUM: US$ 3,19 billion 89 funds Real Estate (AUM – USD million) 4,000 3,000 2,000 1.000 0 1.05 1.35 2005 2006 1.85 1.5 2007 2008 2.96 3,19 2009 May/10 Source: CVM 10 Real Estate Funds Housing Credit - % of GDP (2006) 100% Real Estate Financing 100,0% 92,8% 193.5 86,3% 75,3% 75% 10.0 10 160 140 61,6% 111.5 6 50% 53.4 18,0% 2 13,0% 12,4% 11,7% 2,9% ds lan r the Ne UK rk d ma an n l e e D Ir ain Sp ile Ch o xic e M ry ga n Hu Source: Asociación Hipotecaria Española and Brazilian Central Bank d lan Po il az Br 0 120 100 4.3 4 0% 180 8 25% 200 23.8 0.4 2002 38.4 0.7 1.1 2003 2004 Volume (US$ billion) LHS 80 59.9 60 2.0 40 20 2005 2006 2007 0 Funded Units (thousand) RHS Next 11 Securitized Funds AUM: US$ 29 billion (4% of total) No default in crisis 366 funds 35 220 30 25 160 20 15 100 10 5 40 0 2005 2006 2007 2008 PL (U$ Millions) 2009 May/10 Funds Main Categories Auto Loan Infra-Structure Personal Loan Payroll 12 Regulation and Self-regulation – What is going on in Brazil… Regulation Transparency rules for mutual funds: less period to open the portfolio, liquidity reports to CVM (daily and monthly) , annual report about expenditures Simplified Prospectus Rules about liquidity risk management New Accounting rules for Mutual Funds − IFRS New rule for investment clubs ETF’s Self-Regulation Fund Code: •Minimum requirements for investing in credit securities •Liquidity risk management •Standardized Due Dilligence questionnaire. Private Equity Best Practices Code Suitability requirements Private Banking Best Practices Code Wealth Management Best Practices Code Back 13