Oct. 21 (Bloomberg) -- BRZ Investimentos, a Sao Paulo-based asset management firm, doubled its private equity assets this year as record low interest rates prompted pension funds to invest more money with buyout firms, said partner Marcos Falcao.

“Pension funds were spoiled by high interest rates and now they have to be educated for different markets,” Falcao said at a Latin American hedge fund conference in Miami. “The large ones are very good in private equity and strategic investments but the small ones need to be brought into the game.”

BRZ’s private equity business rose 120 percent to 2 billion reais ($1.16 billion) in 2009, he said. BRZ, which was spun off by GP Investments Ltd., Latin America’s largest private equity firm, has 4 billion reais in total assets under management.

Policymakers are expected today to keep the benchmark interest rate unchanged at a record low of 8.75 percent, after having cut the so-called Selic rate five times this year.

Brazilian pension funds may sell as much as 70 billion reais of government bonds after falling rates led regulators to lift limits on investing in non fixed-income assets, according to SulAmerica Investimentos. The money may move into hedge funds, corporate bonds, stocks and private equity over the next three years, Marcelo Mello, vice-president of Sao Paulo-based SulAmerica, a unit of insurer Sul America SA, said in an interview last month.

BRZ has an institutional investor that will give money to a corporate credit fund it’s creating, Falcao said.

Falcao said he’s starting a so-called Pipe fund, or private investment in public companies. The fund will invest in less- traded stocks on the Bovespa exchange, many of which had initial public offerings in the past few years, he said.

Reallocations

“A lot of these companies came to market and weren’t prepared,” said Falcao. “We will buy a stake in the companies and help them get more liquid so they would be able to get long- only investors.”

The national monetary council last month changed rules on pension funds to allow them to move entirely out of fixed income and raised the limit on equity assets to 70 percent from 50 percent. Regulators also eased restrictions on buying structured-finance funds, hedge funds, international assets and real estate.

Pension funds invested 49 percent of their assets in government bonds when the rules were changed, according to the country’s association of pension funds.

“Brazilian pension funds and investors have been addicted to the CDI from the 70s to 2002,” Otavio Vieira, who manages 1.1 billion reais at Sao Paulo-based Safdie Private Banking, said in the panel alongside Falcao. “This new reality has been picking up momentum the last seven years.”

The CDI is Brazil’s overnight lending rate.

To contact the reporter on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net

Last Updated: October 21, 2009 15:53 EDT