“As an affiliated company to a bank that is involved in the middle market, this sector has been our DNA for many years,” says Ruy Piza, CEO of Vitória Asset Management.

A whole subsidiary of Banco BVA, Vitória is focused on commercial lending to small and medium-sized companies and manages investment portfolios that are mainly comprised of assets that are not only originated from but also controlled by the bank.

The firm focuses on non-traditional investment vehicles and currently has an AUM of $3.2bn. Its portfolio comprises two large private equity funds with an AUM of $1.8m reais and the rest is composed of fixed income funds that mainly invest in asset-backed structures and private credit investments.

According to Piza, the philosophy of Vitória’s funds is based on a solid partnership with investors where, although the firm has independency to acquire assets, it always presents the opportunity to its investors first. This, he says, is a philosophy which has worked well for the firm since it hasn’t lost any of its mandated funds and is gathering more in time.

“We have created and we manage a lot of exclusive funds, in which we have a special arrangement with each investor in terms of the profile of the assets that can be sold to the fund,” says Piza.

“Each fund has its own bylaws and first we have to observe the rules that are applicable to each fund. Of course we have independency to select the transactions, depending on the industry and depending on the profile and structure of the transaction to each of these funds,” he adds.

Piza explains that while Vitoria’s investors are mainly domestic, the firm is looking to attract more international investors. However, there are certain obstacles to overcome - not least the fact that international investors currently wanting to acquire the shares of some of the firm’s funds have to pay Brazil’s IOF entry tax at a rate of 6%.

“Just to start investing, this [tax] is a lot, so we’re looking at ways to put together equity funds without this taxation, or to look at assets which provide enough yield and with a duration which will be long enough that would make the investment worthwhile.”

Vitoria is seeing an increasing demand from international investors, due to the cash available in Brazil because of low interest rates, and investors are looking for opportunities providing they find investments with enough yield, security and liquidity.

High yielding fixed income performance

Vitória’s fixed income funds have benchmarks based on the local interbank rate (CDI plus a certain yield).  According to CEO Ruy Piza, the funds are high yield in comparison with traditional retail fixed income funds which mainly acquire only securities like treasury bills, and Vitória has been able to deliver the target yields on across its range. “All of the funds are tailor made - we build each fund in accordance with the investor’s needs,” he says.  “Since each fund has a benchmark interest rate, the potential assets to be acquired by each fund have to have a minimum yield. Most of the assets are also indexed by CDI so we try to avoid the chances of having a big miss match in terms of interest rate or for instance acquiring an asset that is indexed by an inflation and then having to do some sort of hedge. We have funds with yields ranging from just over CDI to high yield funds like 150% CDI, which depends on the tenor conditions for redemption. The longer the lock-up period, the more yielding a fund could be depending on the risk profile of the assets.”

Organic growth

Vitória’s main objective, says Piza, is to keep growing its existing businesss, to attract more investors and enable its investors, within the firm’s focus, to have the broadest possible opportunities.

“Concerning the management of our credit-backed funds, the more track record we have, the more we are able to attract new investors to put together new funds,” says Piza.

One of the firm’s main challenges is in developing more private equity structures. Piza explains that equity related investments will be extremely important to the future of Brazil. Trying to invest in new projects in Brazil is still a big challenge for most entrepreneurs given the lack of appropriate funding, which is crucial not only for these companies but also for the future of brazil.

“Most of the companies we end up dealing with have a unique opportunity now to increase their corporate governance and levels of disclosure, so their equity value can go higher than what it is now, so we are focused on helping these companies to develop so they can become eligible to attract equity investors.”

“However, while rapidly increasing in size, the capital market in Brazil is still  very selective;we mainly see large corporations having real access to the capital markets.”

Hot market

While decades of steady progress and increasing consumer demand has given rise to Brazil as an economic superpower – in Piza’s words the  the country is currently  experiencing one of its best moments in history – Piza says the much-hyped danger of overheating is a very real prospect.

“Although some institutions in Brazil are now becoming consolidated, we are aware that investors outside Brazil are concerned about the country becoming overheated. We are more careful and selective and we see that already the spreads will get a little higher on the fixed income side which will affect small, mid-size and large companies.

 “Fixed income is very sensitive to changes of perceptions from the banking community and credit risk sentiment. It’s been by far the safest investment in the last years because the real is doing well internationally,” says Piza.

Piza also expects interest rates to go down in the future. “Every time we see inflation going up, we know it will always be the first reaction by the government to try to control inflation by increasing interest rates. However, as soon as it gets under control, we expect the general trend to be interest rates being reduced in the medium and long term.

“In general we have seen insolvency in the market going up for both individuals and corporate in the last seven months. We have seen the ratio of total debt against national GDP increase a lot. It might still be a small percentage in comparison with some developed countries but we have a much higher interest rate benchmark, so the cost of debt in Brazil is higher than what you can see in most of the developed countries,” he adds.

Although recent market volatility is affecting Brazil as a country, as it is in markets globally, as a fixed income house with a private equity arm, Vitória has been relatively unaffected.

“Although it may affect some of the entrepreneurs we do business with in terms of being more conservative, we don’t have any leverage in our funds and we didn’t have any redemptions.”

Future plans

Vitória currently has two fund launches in the pipeline. The first will enable investors to participate in the Brazil’s retail boom. “Retail shops or chains are focusing their efforts on classes C, D and even E, which is a segment that is very hot and there is still a lot of spread. There is still room for consolidation of a lot of regional chains of stores and this is something we like a lot.”

Vitória is also planning to launch a real estate fund in the next few months. “We are searching for opportunities where the land is not that expensive but there is real demand for houses or commercial offices,” explains Piza. 

Aside from these two funds, Vitória is also looking at other sectors and services such as healthcare, education, commerce, call centres and the ethanol industry .

“We don’t have many restrictions in terms of sectors, its more about the [underlying] companies and an analysis of their performance and future plans.”