The Brazilian investment funds industry has grown significantly over the past 20 years, but still faces challenges. There is a lack of equal tax treatment between different investment products, little incentive for investment, and funds are not widely used as a family savings vehicle. The document proposes reducing portfolio risk in multistrategy funds through diversification and improving performance. It also aims to address the family savings issue by providing pro bono financial advising and encouraging the population to value savings. The IE MBA is believed to provide skills and experience to introduce best practices to portfolio managers and tackle real-world problems in the funds industry.
2. Question H
❖ What do you believe are the greatest challenges facing
the sector or industry you would like to specialise in at
IE? What role do you hope to be able to play in this
sector or industry in the medium term?
4. The Industry
The investment funds industry has grown
significantly over the past 20 years.
During this period, the number of funds
has increased from 632 in Dec. 1993 to
14,097 in Dec. 2013. Net equity has risen
from R$ 171 billion to R$ 2,478 billion in
the same period - equivalent to an
annualised rate of 14% growth.
5. The Challenges
❖ There are still few challenges to be addressed in the near future,
including:
1. no equality between taxes on different investments
products;
2. little incentive to investments;
3. funds as a channel for family saving.
6. Since investors make investment
decisions based on the risk and
return outlook, they consider the
impact that taxes will have on
their profits.
There are three special
ways of tax impact on
different funds:
• Those that are
exempt;
• Those that are taxed
when the investment
matures;
• Those that are
periodically taxed,
even if the investor
has made no profit.
7. Tax Benefits
❖ The government uses income tax
exemptions to encourage or
foment specific markets, such as
infrastructure, real estate and
agribusiness sectors. There are
also bonds exempt from income tax
- Real Estate Letters of Credit (LCI
- Letras de Crédito Imobiliário) and
Agribusiness Letters of Credit (LCA
– Letras de Crédito do
Agronegócio). Another income tax
exemption benefits investors of
debentures from real estate funds
and infrastructure.
8. Tax Benefits
❖ Other investments are taxed when redeemed, that is the case of
some public bonds - floating rate bonds (LFT), Brazilian Inflation
Linked Series (NTN-B Principal), and long-term deposits, such as
Certificates of Deposit (CDB's – Certificado de Depósito Bancário)
and Bank Deposit Receipts (RDB's – Recibo de Depósito Bancário).
This form of taxation clearly provides
an advantage over the periodic
taxation that applies to fixed income
and multimarket investment funds.
9. Savings Scenario
❖ Brazilians invest little. Currently, Brazil is
ranked 26th in the world for individual
saving, about US$ 950 or R$ 2500 per
year. Since per capita income was R$
24,000 in 2013, the average saving per
person is comparable to little more than a
month's salary. This is completely
inadequate to forecast a scenario of
financial security.
❖ The population needs to understand the
importance of building savings and
assets. Moreover, they should realize
that funds are the most appropriate
vehicle for society to accumulate wealth.
10. The Point
❖ In the last 10 years the funds have shown attractive returns in US$:
However, it is noticeable that Multistrategy funds
have been performing less than other funds
category over the past 10 years. Still, many
investors choose to invest in Multistrategy since it is
an option for portfolio diversification and equity
protection. Today, this category of investment
accounts for 17% of the total industry, second
biggest.
11. The Goals
❖ My target is reduce portfolio risk through
diversified strategies and improve
performance for Multistrategy funds.
❖ Additionally, I will also take the
opportunity to get connected and build a
strong professional network with fellow
students in order to address the family
savings issue. I’m committed to provide
pro bono financial advisory to those
underprivileged individuals and families
striving to build assets but can’t afford to
engage a planner on their own.
12. The Goals & IE
❖ That’s where the IE International MBA comes in. Once I introduce
the best financial practices acquired in the IMBA program, I will be
able to motivate and encourage portfolio managers to rethink
management. On top of that Lab Period will be invaluable to equip
me with the tools and experience to tackle real-world problems.