Investors know times are tough in Brazil when debt-collection companies are among the best investments.
That’s the case for Gavea Investimentos Ltda., the private-equity firm controlled by JPMorgan Chase & Co., which just made its first investment of 2015 after raising $1 billion last year. The Rio de Janeiro-based firm paid more than 100 million reais ($32 million) for a minority stake in Paschoalotto Servicos Financeiros, Brazil’s biggest debt collector, which counts companies such as Banco do Brasil SA and Volkswagen AG as clients, according to a person familiar with the matter.
It’s not hard to see why it might be a good time to invest in debt collection. Economists say Latin America’s largest economy is heading for its deepest recession in 25 years, and households are more indebted than ever before. Peninsula Investimentos SA, the Brazilian asset manager backed by Credit Suisse Group AG, said in March it was raising 500 million reais to invest in distressed corporate assets.
“That segment of the market is going to gain a lot of force,” Pedro Paulo Silveira, chief economist at TOV Corretora, said in a telephone interview from Sao Paulo. “You’re going to start to see a meaningful increase in unemployment and, therefore, you’re going to start to observe an uptick in debt delinquency.”
A Gavea official declined to comment on the acquisition. JPMorgan, which bought a 55 percent stake in Gavea in 2010, rose 0.5 percent to $68.50 at 11 a.m. in New York Stock Exchange trading.
Silveira is forecasting an economic contraction this year of at least 2 percent. Households, already battered by inflation that’s eating away at real income are just starting to feel the brunt of the slowdown, he said.
Higher inflation, unemployment and interest rates are increasing consumer debt and borrowing costs. Household debt jumped to a 10-year record of 44.3 percent of annual earnings as of April, central bank data show.
Non-performing loans, or debt overdue more than 90 days, climbed 0.1 percentage point to 3 percent of loans in April from a year earlier, according to the central bank.
The financial system is growing in Latin America’s biggest economy, creating long-term opportunities that will remain after the country emerges from its current slump, Paschoalotto Vice President Eric Garmes said by phone from Bauru, Brazil.
He said that even with the biggest market share in Brazil, Paschoalotto still has just 7 percent market share. But it aims to increase that number to about 20 percent over the next five years.
“The credit recovery market in Brazil is still very fragmented,” Garmes said. “It has the opportunity to grow with credit expansion and with the growth in delinquency.”