PPS: Brazil’s leading investment consultant

Brazil is home to an increasingly sophisticated financial landscape, and with more than 15,000 investment funds amounting to more than $1tn in assets under management (AUM), PPS Portfolio Performance Ltd. is playing an important role in helping investors to get the most from the country’s opportunities.

Based in São Paulo, the company was founded in 1996 with the development of the ambitious PPS – Portfolio Performance System – project: the first software produced in Brazil to analyse the performance of investment funds using metrics combining risk and return. By incorporating several different risk-return metrics such as statistical regressions to assess performance attribution and working with a refined database in order to obtain accurate peer groups, the innovative PPS system was a real ground-breaker in a market that was, back in the 1990s, in severe need of modernisation.

Building a team of experts was the second step in enabling the firm to commit to providing investment services to institutional clients, mainly pension plan entities. Staff turnover at PPS is quite low, especially among partners and senior analysts.

Leading the company is Everaldo Guedes de Azevedo França, founding partner and CEO, who frequently lectures on business and finance around the world. França has more than 30 years’ experience in the study of methods applied to portfolio performance evaluation in Brazil.

Since its very beginning, PPS has been structured to provide investment advice in a way that is completely free from conflict of interest. This is achieved by avoiding to work for portfolio managers, banks or any kind of organisation whose interests could conflict with the investors. PPS regard integrity as an essential value, enabling it to build long lasting relationships with clients and stakeholders.

PPS’s range of services allows it to help pension funds elaborate on their investment policies and compliance systems, as well as developing asset-liability management (ALM) projects, portfolio manager selection processes, and continuous performance evaluation. Furthermore, PPS’s team supports and takes part in investment committees and training programmes for pension fund managers.

At the beginning of its operations, PPS pioneered conducting performance evaluation meetings, whereby the client had the consultant present to offer support in understanding the strategies and economic scenarios of the portfolio manager. Following this development, in 2001 PPS developed the first dynamic stochastic optimisation model for ALM studies in Brazil, based on economic scenarios. Dozens of local pension funds have benefitted from the projects run through this model.

Over its 20 years of existence PPS has been acknowledged in Brazil as one of the most respected organisations operating in its field. As a result, França has been awarded by various Brazilian pension funds ‘The Investments Consultant of the Year’ for 2005, 2007, 2008 and 2013.

Based upon this solid foundation, the firm is prepared to assist international investors who see the current turnaround in Brazil’s economy as an opportunity to invest in its capital market. Each market has its own idiosyncrasies. Therefore PPS’s team of analysts believe it is vital for any foreign investor to seek local expertise in order to identify competent and ethical service providers able to help them achieve their goals. A ‘who’s who’ knowledge of Brazil’s companies and organisations is of vital importance to investors. PPS has this knowledge.

Additionally, what makes Brazil an attractive market to invest (among other factors) is that the country possesses a solid financial system. Indeed the regulation of the Brazilian financial system has become recognised worldwide as a reference point.

The country also has a solid rule of law; there are no border disputes, nor ethnic, religious, or other kinds of conflicts within its population – and shows several opportunities for investments. Clean energy generation, in particular, is a main concern for Brazil, which has one of the cleanest energetic matrixes in the world, with around 44% of total coming from renewable sources.

After a difficult period that led Brazil into economic recession, the economy is now entering the first stages of recovery. There are many challenges ahead, but with the expectation of important reforms to assure a future of sustainable growth, the future is looking bright.

The Brazilian economy: an overview

After eight consecutive quarters of contraction resulting in an accumulated 7% drop in GDP in only two years, the Brazilian economy entered a cyclical recovery process starting in 2017. It’s a process that “should bring back positive growth rates this year as well as in 2018”, says José Mauro Delella, a former economist with Brazil’s leading banks and the current head of JMDelella Economic Consultancy.

The economic recovery has been made possible as a consequence of the significant improvement in the conditions of certain economic fundamentals, which have taken place partially as consequences of the recession itself.

The main highlight was the rapid and extremely intense reduction in the current account deficit. After exceeding 4% of GDP in 2015, Brazil began an accelerated downward trajectory falling to slightly above 1% of GDP by the end of the first quarter of 2017. This change in external account dynamics allowed for reversing the real devaluation trend at the beginning of 2016, with favourable implications over inflation dynamics and expectations.

Inflation has responded more than satisfactorily to this recession and resulting in a more stable exchange rate scenario. In the accumulated 12-month period up to April, Brazil recorded a 12-month accumulated consumers price index of only 4.08% – a significantly lower baseline than the 10.67% recorded in 2015, even lower than the 4.5% target pursued by the Brazilian Central Bank. In such a context, the basic interest rate has dropped notably and should continue the downtrend, most likely reaching levels close to 8% within the next few months, from the peak of 14.25%.

In recent months, the Brazilian legislative approved an important bill limiting public expenditure for the next 20 years. Additionally, a modernisation of labour relations law was also approved. Also imminent is the approval of a Constitutional Reform bill altering the Brazilian Social Security System, making it more suitable to the country’s demographic evolution over the coming years.

If such reforms have not been able to change fiscal dynamics in the short-term, they have certainly created a far more favourable environment for the future. The reforms should also contribute to maintaining appropriate levels of risk for Brazil, assisting in providing support to the long-term economic recovery.

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