BB DTVM: Niche players to innovate asset mgt. industry

New developments in Brazil's asset management industry will come from highly specialized niche players, while concentration among the sector's larger players has reached its peak, BB DTVM's CEO Nelson Augusto told BNamericas. "BB DTVM has all sorts of funds, including tailor-made funds for clients with large volumes. But of course, if a client wants a very specific, high-yield hedge fund, that's not our niche," said Augusto, who runs Brazil's largest asset management operation with some 80bn reais (US$27bn) in third-party funds. Several executives from foreign banks that pulled out of Brazil have recently teamed up to form their own investment banking operations. A number of executives at JP Morgan's former asset management operation, for instance, decided to go it alone instead of joining Brazil's largest private bank Bradesco, who bought the unit out. Executives from Brazilian investment bank Pactual and Germany's Dresdner Bank recently created Banco Fiducia. Ex-central bank president Gustavo Franco hired several former Dresdner Bank executives to join his investment bank Rio Bravo. Fellow ex-central bank president Arminio Fraga said recently he would start his own investment banking business as soon as he can officially resume his activities within the local private sector. Meanwhile, the industry will probably not stage any big merger or acquisition in the next few years, Augusto said. "BB DTVM is certainly not planning any acquisition and I believe the industry has reached a point where there will be no more concentration," he said. The 10 largest fund managers in Brazil already hold more than 80% of third-party assets in the industry, Augusto argues, and the purchase of a large player would be too costly. "To make a significant move in the industry, one of the five largest would have to buy the tenth or eleventh largest, which are too big. The margins in this business are narrow. It's not worth the investment," he said. Bradesco bought US-based investment bank JP Morgan's asset management unit in January. In March, UK-based bank HSBC's local unit bought US-based Bank of America's local investment funds with assets around 1.6bn reais. Italian Bank BNL sold funds to Banco Votorantim and asset management operation Geracao Futuro. "Of course I can't say what goes on in the minds of my competitors. At this point, nothing would surprise me," Augusto added. Since August 2001, BB DTVM has operated as an independent company, fully owned by government-controlled Banco do Brasil, the country's largest bank. The company started as a division of Banco do Brasil 17 years ago. BB DTVM has been the largest asset management operation in the country since 1995. Unlike Banco do Brasil, whose charter forbids the purchase of another company, BB DTVM does not operate under that constraint. "In legal terms it can, but it won't. The company has clearly decided not to," Augusto said.