New department director is increasing focus on funds with more complex composition
08/31/2023
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Pedro Boainain — Foto: Rogerio Vieira/Valor
Pedro Boainain, the new director of investments in credit, fixed income, and indexed Funds at Itaú Asset Management, is driving what he terms a “transformation” in the division. Assuming the role in March, he noted that “things were more stagnant than they should have been.” Consequently, he is reevaluating the product lineup, and focusing on those more complex to leave behind the notion that fixed income is strictly a conservative investment. The idea, he said, is to be prepared for the next moves by investors, given the start of the downward cycle of interest rates in the country.
“In traditional fixed income, the one without credit risk, the industry lagged behind. It should be generating significant interest now but is instead repelling funds. It has been experiencing outflows for quite a while, excluding credit funds. It has been losing out to multi-market and CDB funds,” he assessed.
According to Mr. Boainain, whose department oversees R$500 billion of the total R$680 billion managed by Itaú Asset, investors grew accustomed to a fixed-income approach with low risk and low returns alongside multi-market funds. “A gap formed between these two things. So, we created products in the middle.”
He’s referring to the “unconstrained” fixed-income funds, which aim for returns through exposure to nominal interest rates, real rates, or price indices in Brazil and, in some cases, abroad. Itaú Asset allocates in countries like South Africa, Mexico, the United States, and Japan. Currencies come into play to hedge foreign interest rate exposures. There are five products whose goal is to outperform the CDI, managed by different teams. There is also a fund whose objective is to outperform inflation. Volatility, said Mr. Boainain, is between 2% and 3% a year, a level close to that of more conservative multimarkets.
In pursuit of enhanced results, the asset manager reduced the administration fee for active fixed income to 0.9% annually and introduced a 20% performance fee for returns exceeding 100% of the interbank short-term rate (CDI). In the case of IPCA Action, the fee applies to gains beyond IPCA+ real rates. “Fixed income funds didn’t charge performance because it mainly didn’t make sense. Why charge for a product with modest performance?” he asked. “It’s a transformation brought about by various small things that will set us apart more distinctly in the industry.”
In the realm of private credit, the asset management launched the Itaú Action Incentivized Debentures, focusing on infrastructure bonds exempt from income tax. “Credit events at the start of the year froze the entire market except the infrastructure segment, which remained insulated and continued well.” He clarified that this fund carries more risk, with 8% annual volatility, and has been attracting R$5 million to R$10 million per week.
Mr. Boainain contends that even if the Central Bank accelerates interest rate cuts, when the cycle ends, the Selic rate (Brazil’s benchmark interest rate) will still be around 9% to 10%, which is still relatively high. Fixed income will remain advantageous, but the imbalance towards more sophisticated assets diminishes. He’s already noticing a more significant flow into slightly riskier products in the year’s second half. “We went through a first half of many outflows in the asset management, with a migration to treasury products. The funds never left Itaú Unibanco, but now we see a return to funds.
The Itaú Asset director mentioned that the return to credit funds is still modest after the turmoil of the first quarter. He stressed that these products are intriguing but must be approached cautiously since companies are more indebted and the economic context is challenging. “Many funds considered conservative were affected, surprising investors who, in turn, pulled out their money and found themselves without conservative options. They ended up fleeing to bank bonds.”
He recounted having previously led a transformation when he took over the credit desk two and a half years ago. “We began, for instance, to do private placements (when the bank absorbs the entire issuance), which was rarely used in asset management, to negotiate better issuance terms. We intensified our credit analysis capabilities and invested in teams and processes. We shifted from ‘buy and hold’ to active management. We assess if the portfolio makes sense every day. The number of secondary market transactions multiplied more than tenfold,” he recalled.
Now, in the new fixed-income strategy, he states that they’re already seeing results. “We’re revisiting all our processes. Itaú Asset has approximately 2.6 million clients, and Mr. Boainain’s division also oversees four fixed income Exchange-Traded Funds (ETFs), which invest in portfolios that follow specific indices as references. Exchange-traded funds that invest in portfolios linked to a benchmark index, such as Anbima’s IMA-B 5, which is made up of federal bonds maturing in at least five years and at most one year.
*Por Liane Thedim — Rio de Janeiro
Source: Valor International