Fund That Survived 25 Years of Brazil Crises Is Wary of the Hype

(Bloomberg) -- Two presidential impeachments, three currency changes and hyperinflation as high as 2,500 percent a year have made Fabio Alperowitch a cautious man.

The co-founder of Brazil’s FAMA Investimentos Ltda., a Sao Paulo-based asset-management firm that’s been around for more than two decades, is more conservative than many of his competitors about prospects for Brazil’s much-delayed pension reform. Investors swept up in the enthusiasm about the election of President Jair Bolsonaro last year have pushed stock prices to record highs, betting he’ll succeed in advancing market-friendly policies.

“I’ve just hit my head against the wall so many times,” Alperowitch said in an interview. “I’m open-minded about this ‘new Brazil,’ but I’ll believe in broad reform when I see it.”

His caution doesn’t mean FAMA is staying on the sidelines, only that it’s less willing to take chances on riskier companies.

Alperowitch says the fund, which has about 2 billion reais ($517 million) under management, is “practically 100 percent” invested in firms that would survive even if reform goes wrong, but that would also benefit from a ramp-up in economic growth. On that list are larger companies that were able to get cheap and easy credit during the crisis years. Localiza Rent a Car SA, drugstore chain Raia Drogasil SA, paper maker Klabin SA and health-diagnostics firm Fleury SA are among the fund’s current holdings.

Picking Stocks

Even though stocks are near record levels, companies tied to domestic consumption have lagged behind others such as banks and the oil giant Petrobras.

“So if there are any setbacks on reforms, those stocks that climbed the most will suffer more,” he said. “And if the reforms progress, those consumption companies will rally."

The manager’s flagship equity fund has returned roughly 8,400 percent since its inception two decades ago -- about four times the return on Brazil’s benchmark stock index during the period.

FAMA’s stock fund was one of the first run by an independent asset manager in the early 1990s, according to Alperowitch, who ran it from his parents’ house with a college friend, Mauricio Levi. The firm’s name is a combination of the first syllable of the partners’ names.

The lack of structure and money at the beginning -- Alperowitch says the pair were netting $20 a month in revenue -- meant they had no cash to pay for real-time trading data and research or access to top-tier executives. Instead, they did field work, hanging out at supermarkets to talk to customers, and focusing on smaller companies where they might get a chance to meet with middle management.

Alperowitch has stuck to that strategy. The firm doesn’t invest in companies with a market value higher than 50 billion reais, or those that are in regulated sectors or depend too much on factors outside of management’s control, like utilities. More surprisingly, Alperowitch says he’s never -- “under no circumstances” -- invested in a state-owned stock in his 25 years in the market.

Many of Alperowitch’s competitors are less pessimistic than he is. A Bank of America survey of 32 money managers showed 80 percent believe an overhaul of the nation’s costly pension system will be approved in the second half of the year, with savings of about 700 billion reais over 10 years. Alperowitch said he’s “not that optimistic about a robust reform,” and thinks it’s unlikely before year-end. His views are somewhat similar to Rogerio Xavier’s, one of Brazil’s most revered hedge fund managers, who also believes investors are underestimating obstacles to reform.

Read more about Rogerio Xavier’s views on reforms

“If the reform doesn’t happen now, I don’t know when we’ll have such a confluence of factors like we do today,” Alperowitch said. “I like to look at longer terms, but in Brazil I just can’t.”

To contact the reporters on this story: Julia Leite in Sao Paulo at jleite3@bloomberg.net;Felipe Marques in Sao Paulo at fmarques10@bloomberg.net;Vinícius Andrade in São Paulo at vandrade3@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Steve Dickson, Dan Reichl

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