Brazil’s Petros Pension Fund Dumping Government Bonds as Local Yields Drop

Fundacao Petrobras de Seguridade Social, Brazil’s second-biggest pension fund, is selling government bonds and moving money into real estate and private credit as benchmark yields fall, investment director Carlos Fernando Costa said.

The yield on Brazil’s local fixed-rate bonds due in 2021 has fallen 46 basis points, or 0.46 percentage point, to 12.51 percent since the end of the first quarter, according to data compiled by Bloomberg. Expectations that yields will fall further is also pushing the fund to buy local corporate bonds and asset-backed securities, as well as stakes in publicly traded companies large enough to ensure a board seat, Costa said in a May 27 interview at his office in Rio de Janeiro.

“We have to look for other assets with higher returns,” said Costa, who oversees 55.6 billion reais ($34.8 billion) in funds for employees of state-controlled oil producer Petroleo Brasileiro SA. (PETR4) “It’s a shift that will continue.”

Brazilian bond yields are falling on expectations that a surge in inflation will begin to fade while the economic expansion fuels demand for the nation’s real estate. Petros is buying warehouses to lease to retailers as logistical bottlenecks lead demand to outpace supply, Costa said.

“Companies don’t have space,” he said. “They don’t want to be the owners of it because it’s not their business. There’s very large demand for this.”

Government Bonds Reduced

Costa declined to give figures on the breakdown of Petros holdings. He said at an April 5 event in Sao Paulo that Petros had reduced its holdings of public debt to about 45 percent from 70 percent last year.

The fund in January said it bought 4.88 percent of Itausa - Investimentos Itau SA (ITSA4), the parent company of Brazil’s biggest bank, for 3.1 billion reais. Not including such purchases, Petros is maintaining its equity holdings because the jump in inflation limits potential stock market gains this year, Costa said. Annual inflation was 6.51 percent in the 12 months through mid-May, the fastest pace since 2005.

Petros may seek to make private-equity investments in health, education and technology companies, which will benefit from Brazil’s rising wages and falling unemployment, Costa said. Brazil’s jobless rate fell in April to the lowest level on record for the month, the national statistics agency said last week.

“Our whole strategy is based on a conviction in the improvement of the quality of life of the Brazilian citizen,” Costa said.

Brazil’s largest pension fund is Caixa de Previdencia dos Funcionarios do Banco do Brasil.

To contact the reporter on this story: Alexander Cuadros in Sao Paulo at acuadros@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulous@bloomberg.net

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