|Betting on the games|
Going along for the World Cup/Olympics ride, managers set up infrastructure-oriented products
When Rio prevailed over Madrid and won the right to host the 2016 Olympic Games, Ricardo Binelli – a partner at the Petra brokerage firm – gathered his team to make an informal assessment of the economic sectors that would benefit most from the news. His projections gained conviction when he visited Barcelona on vacation in October 2009, right after Brazil's victory was announced. The 1992 Olympics transformed the Catalan capital – leading to a surge in tourism and major infrastructure developments. "The Spanish told me that it would be impossible to hold back the inflow of resources to Brazil", he recalls. With that in mind, Binelli decided to set up a fund to invest in stocks of infrastructure companies, to be launched sometime in the coming months. Following the example of banks and asset managers, Petra wants to take the construction boom around the world's two largest sporting events – the 2014 World Cup and the 2016 Olympic Games – as an opportunity to attract investors.
Events like these usually consume substantial amounts of government and private capital. For the Cup alone, the Brazilian Association of Infrastructure and Primary Industries (Abdib) calculates that Brazil will have to invest roughly R$ 84.4 billion. The greater part of the expense will be assigned to improve urban transportation, i.e. the subway, train and bus systems (R$ 59 billion, or 69.9% of the total); basic sanitation, with R$ 12.4 billion; and airports, with R$ 4.3 billion. A survey released last month by the Brazilian Development Bank (BNDES) for the 2010-2013 period estimated that investments in electrical power, ports, telephony, roads and railroads will reach R$ 274 billion, 37.3% more than the R$ 199 billion invested between 2005 and 2008.
Two other banks are also working out the final details of their Olympics-linked funds: Banco do Brasil and Itaú Unibanco. Not by chance, Rio Wind – an equity fund run by Itaú Unibanco and distributed in Japan late last year – raised a record-breaking R$ 1.2 billion, the highest figure among all funds that debuted on the Japanese market in 2009, thanks to its Olympics-oriented sales pitch. The Japanese, who saw Tokyo's defeat to Rio de Janeiro, know full well the effects that organizing the Olympic Games can bring. They hosted the Games in 1964, a period of great economic prosperity.
ONLY A SELECT GROUP – The two sporting events are giving managers the opportunity to offer differentiated portfolios. While traditional infrastructure-oriented funds invest in several segments in different proportions, those targeting the Cup and Olympics focus on a smaller number of industries – precisely those that will tend to benefit directly from the event preparations: construction, electricity, transportation logistics and steel.
Santander and Bradesco got a head start. The former began to plan its fund in December 2009, two months after the Cidade Maravilhosa (Wonderful City, as Rio is known in Brazil) was confirmed as host of the 2016 Olympic Games. "Even before Rio's victory was announced, we already saw a lot of interest from companies and investors regarding projects connected to the two events", comments Alexandre Silvério, the equity fund management superintendent at Santander Asset Management, the Spanish-based bank's asset management division.
With similar characteristics as Santander's fund, Bradesco's portfolio created in 2007 after Brazil was chosen to host the Cup was also stimulated by the launch of the Brazilian federal government's Growth Acceleration Plan (PAC) that year. The experience of funds with this profile in countries where such events have taken place in the past was the bank's major reason for reproducing the idea, according to Herculano Aníbal Alves, Bradesco Asset Management's equity investments’ executive superintendent.
The portfolio focuses mostly on construction, followed by mining, steel and transportation logistics. Alves reveals that the fund's equity position on February 11 was R$ 123.7 million, but preferred not to reveal his fundraising expectations for the remainder of the year. "This type of product is only just starting to become consolidated", he observes.
For Banco do Brasil, the Cup and Olympics are part of Brazil's growth agenda, side by side with the pre-salt petroleum development and PAC projects. "These four factors will be major drivers of the projects yet to come", says BB Gestão de Recursos (BB DTVM) director Carlos Massaru Takahashi. The infrastructure fund scheduled for launch by the end of March encompasses equities from the telecommunications, energy, highway concession, logistics and financial service industries.
Without getting into too much detail about the new fund, Takahashi comments that the product will feature a low ticket and a "reasonable" management fee, to attract retail investors. The fund's distinguishing feature is that part of the fee will be used to support social projects. "A portion will be used to train foreign language students to work as interpreters during the Cup or Olympics". he observes. Fundraising expectations for the fund are high, Takahashi points out. He is expecting the portfolio's net equity to reach R$ 1 billion over the next three years. "More funds will be raised as the event calendars come to a close and the projects begin to turn a profit", he says.
Differently from other firms, Petra's fund will include services and consumer goods companies, in addition to infrastructure ones. "Segments like car rental will be taken into account", Binelli indicates. His idea is to directly buy companies' stocks and set the fund's initial investment in the R$ 20,000 to R$ 50,000 range.
THE HAZARDS OF THE GAME – Prospective investors in one of these funds should be aware that more attractive return rates are only expected for the medium or long term, as the projects will take years to be completed and start making a profit. It is also recommended that the funds invested don't require immediate withdrawal. Bradesco's website classifies the liquidity of Bradesco FIC FIA Infraestrutura as "medium", as withdrawn funds will take four days to be transferred to a checking account. Santander's site informs that the public targeted by its infrastructure fund are "(...) individual and corporate investors aiming for long-term results".%u2028
Some construction delays may occur, but the risk is not critical. "We have time for these investments", affirms public finance professor Adriano Biava from the University of São Paulo's School of Economics, Administration and Accounting (FEA-USP). For Biava, the public sector is making a major effort to implement the events responsibly. "The two events will convey an image of Brazil to other countries, in terms of organization." As if the federal government's commitment to the events weren't enough, the international entities behind soccer and the Olympic Games (Fifa and IOC) strictly monitor the works’ progress. Serious faults are punishable by heavy fines and discredit before the international community, says Binelli from Petra Asset.
The demand for infrastructure expansion projects is leading many companies to procure funds in the capital market, which may cause many of them to participate in infrastructure funds in the future. Out of the five companies that filed IPO registration requests at the Brazilian Securities and Exchange Commission (CVM) between the beginning of the year and February 28, four are part of the infrastructure industry. Three of them — Primav Ecorodovias, Mills Estruturas e Serviços de Engenharia, and Júlio Simões Logística — mentioned in their respective preliminary prospectuses that they intend to raise funds to carry out projects associated with the Cup and the Olympic Games.