PPS: maximising investment potential in Brazil

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| The European | 2 November 2016

Brazil is home to a flourishing financial marketplace, with more than 15,000 investment funds amounting to more than $1tn US assets under management (AUM). Within this arena PPS Portfolio Performance Ltd is playing an important role in helping investors to get the most from local opportunities.

Based in São Paulo, the company was founded in 1996 with the development of its ambitious PPS (which stands for ‘Portfolio Performance System’) project, the first software produced in Brazil to analyse the performance of investment funds using metrics combining risk and return. Since then, one of the main goals has been to increase its power of analysis, periodically implementing new tools and techniques, leading PPS to the current upgraded version.

In the early 1990s, mutual funds evaluation relied only on returns, and rankings based solely on these criteria were periodically published in the main Brazilian business magazines and newspapers. By incorporating several different risk-return metrics, statistical regressions to assess performance attribution, and working with a refined database in order to obtain accurate peer groups, the innovative PPS was a real ground-breaker in a market that was in need of modernising. Building a team of experts was only the second step to be taken.

Company professionals are fully dedicated to providing investment services to institutional clients, mainly pension plan entities. Staff turnover is quite low, especially among partners and senior analysts.

Experienced leadership

At the head of PPS Portfolio Performance, Everaldo Guedes de Azevedo França, founding partner and CEO, is a frequent international lecturer with more than 30 years of experience in the study of methods applied to portfolio performance evaluation in Brazil. Other partners average over 12 years experience in the industry. França is also involved in training pension funds managers. Among other institutions, he oversees courses at UniAbrapp, the educational arm of ABRAPP, the Brazilian pension funds association.

The initiative to provide professional consulting on investments for pension plans emerged in the late 1990s – springing from a growing demand for an impartial performance evaluation in the Brazilian market at the time. That’s why, since its very beginning, PPS has been structured to provide investment advice in a way that is completely free from conflicts of interest, by avoiding working for portfolio managers, banks or any kind of organisation whose interests could conflict with those of the investors.

Brazil’s mutual funds industry was born some decades ago, inside the big financial conglomerates, exposing investors to the risks derived from the important conflicts of interests present in such organisations. The pension funds industry in Brazil has always needed the presence of a professional organisation, capable of combining technical information, technology, and qualified professionals to provide impartial, state-of-the-art performance evaluations and to follow-up portfolios in detail.

In this environment, PPS adopts a culture of full transparency with its clients. Integrity is an important value and one that’s essential to building long-lasting relationships with clients and stakeholders.

PPS’s service range allows the company to help pension funds with elaborating investment policies and compliance systems as well as developing ALM (asset liability management) 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.

The company’s approach to analysing clients’ portfolios performance relies on the belief that results are important not only absolutely and relatively to the benchmark, but also in comparison to peer groups. Thus, the team of analysts carefully prepares those groups using style analysis regressions, cluster analysis, and a scrutiny on each investment fund’s declared investments policy. Applied over suitable periods of time the whole methodology provides a clear vision on whether the portfolio manager is not only delivering a reasonable performance but also seizing the opportunities the market has shown.

In order to fully implement this vision, at the beginning of its operations, PPS pioneered performance evaluation meetings where the client had the consultant present to provide support in understanding the strategies and economic scenarios views shared by the portfolio manager. Following this pioneering initiative, in 2001 PPS’s team 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.

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

Based on this solid foundation, the firm is prepared to assist international investors who see the current positive turnaround in Brazil as a moment of opportunity to invest in the country’s capital market. Each market has its own idiosyncrasies. And so, PPS’s team of analysts believe it is very important – for any foreigner investor – to rely on local expertise to identify competent and ethic services providers able to help them achieve their goals, a vision which is of paramount relevance.

Additionally, what makes Brazil an attractive market to invest, among other factors, is the fact that the country has developed a solid financial system. The regulation of the Brazilian financial system is recognised worldwide as a reference point. For example, investment funds are required to disclose their positions to regulating agencies within three months. This regulation ensures the occurrence of Ponzi scams like the Bernie Madoff case are highly unlikely. At same time, all funds must disclose their shares values daily to the CVM (Brazilian Securities and Exchange Commission), which makes them public in their website. Financial transactions are registered in the name of the beneficiary and not the intermediary, which ensures security to the former in the event of bankruptcy of the latter.

The country has a solid rule of law, there are no border disputes with its neighbours, nor ethnic, religious, or other kinds of conflict within its population – and is full of opportunities for investment. Clean energy generation, in particular, is a main concern for Brazil, which has one of the cleanest energy matrices in the world, with around 44% of its total power coming from renewable sources.

After a difficult period that led Brazil into recession, the economy now enters the first stages of recovery. There are many challenges ahead – but with the implementation of important reforms imminent – the country can look forward to a sustained period of growth.

Further information
www.pps-net.com.br

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