Why Brazil’s Bradesco Bought a Majority Stake in Real Estate Fund Manager BV DTVM

The transaction reveals the country’s second-largest private bank’s interest in the segment, and high-income clients

By buying 51% of BV DVTM, Bradesco is placing its bets on new growth opportunities in the high-income segment and on offering higher value-added products to high-income clients.
August 24, 2022 | 02:44 PM
Reading time: 4 min.

Bloomberg Línea — Bradesco (BBDC4), Brazil’s and Latin America’s second-largest private bank, announced Wednesday the purchase of a 51% stake in BV DTVM, the real estate fund manager of Banco Votorantim (BV), and which is the ninth largest real estate fund manager in the country, with more than 41 billion reais ($8 billion) of assets under management.

With the transaction, Bradesco aims to create a new investment fund manager, which will have its own brand, the name of which is still to be defined, and which will have 22 billion reais ($4.3 billion) in assets under management.

The value of the deal was not disclosed.

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Bradesco’s move marks the bank’s interest in the high-income client segment, a public that seeks diversification of their investments and is less vulnerable to default - one of the main concerns of the banking sector in a context of high interest rates, with the central bank’s interest rate (Selic) at 13.75% per year, and the migration of resources from variable income to fixed income.

In the last quarter, financial institutions with greater exposure to high-income clients, such as Itaú (which had a 20.8% return on equity in the quarter) and BTG (with 21.6%), had better profitability than Bradesco, which has an 18.1% return.

BV Private offers financial and wealth solutions for high-income clients, Bradesco said in a press release.

Bradesco considers the transaction a “strategic partnership” and through which it will acquire, through one of its subsidiaries, 51% of the capital of BV DTVM, a company that concentrates the management of third-party resources and the private banking activities of Banco BV.

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The conclusion of the transaction will be subject to compliance with legal and regulatory approvals.

“With an independent structure, the new asset will offer investors innovative products compatible with the market reality,” Roberto Paris, Bradesco’s CEO, said in a press release.

‘More sophisticated investments’

In an interview with Bloomberg Línea, Paris cited his expectation that the deal will have regulatory approval at the end of this year or by early 2023, and that there have already been suggestions for a name for the new asset, but without revealing the options.

About the absence of the transaction value in the disclosure, Paris cited the commitment of the two parties to keep the terms of the contract confidential.

As for the decision to separate the new asset as an independent vehicle from Bradesco Asset Management (BRAM), Paris explained that the new fund manager will have a focus on more sophisticated, high value-added investments, requiring different teams and approaches.

“The new asset will offer equity funds in general, long-term credit operations, and private equities. We see new opportunities in the carbon credits segment as well. As for crypto, that is not in our initial plan,” he said.

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The director of Bradesco also emphasized the participation of real estate funds in the BV asset, estimating they will account for between 20% and 25%. “The real estate development segment should be explored by the new asset. We also see opportunities in infrastructure, sanitation, and agriculture,” he said.

The infrastructure sector has attracted the attention of investment funds.

Last week, a fund from XP bought the 30-year concession of two iconic airports for executive aviation in the country, Campo de Marte, in São Paulo, and Jacarepaguá, in Rio de Janeiro, with an eye on the appreciation of land and the potential expansion of VIP air terminals.

Asked if there is a possibility of Bradesco increasing its shareholding in the BV asset, Paris said this option can be evaluated in the future. Other institutions, such as BTG, XP and Itaú, have bought minority stakes in other fund management companies, but Bradesco preferred to buy a controlling stake.

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“There are several business models in the market, but for Bradesco this strategic decision to acquire 51% of the capital made more sense,” he said.

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He said the partnership with BV is part of Bradesco’s efforts to complement its offer of products and services to clients with a different credit and investment profile. The brokerage Ágora and the bank’s private banking area (Prime) will not be affected by the new asset, he said.

In Brazil and abroad

Bradesco says that it already has a local asset management platform, with more than 544 billion reais ($106.5 billion) in assets under management, and private banking, with more than 380 billion reais ($74.4 billion) under management, and which are the third- and second-largest fund managers in each segment respectively.

“The [new] company will be independent and have its own investment philosophy, with a complete portfolio of investment funds aimed at the general market and at every investor profile. In private banking, the model will be one of open architecture with the offer of the best investment products available in the market, in addition to banking services offered by Bradesco and BV, in Brazil and abroad”, said Gabriel Ferreira, CEO of Banco BV.

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