SAO PAOLO: Itau Asset Management is increasing holdings of corporate debt across sectors including utilities, fitness chains and car rental companies, taking advantage of wider spreads that followed a bout of turmoil in Brazil’s credit market.
Fayga Czerniakowski Delbem, partner and head of core credit at the firm, is scooping up assets she sees as discounted amid signs of stabilisation in Brazil’s credit fund industry, she said in an interview.
Brazil’s local debt market lost some momentum after years of strong inflows and tightening spreads.
Investors are demanding higher risk premiums to hold corporate debt as troubles at heavyweights like Raizen SA and Companhia Brasileira de Distribuicao – which are struggling to cope with high interest rates – heightened concerns about credit quality.
The shift has weighed on performance, with many portfolios lagging the so-called CDI benchmark rate, which triggered a wave of redemptions.
Delbem also likes regulated industries like energy and waste management, with predictable cash flows and resilient margins that make them less vulnerable to Brazil’s volatile macroeconomic environment, as well as “selected” structured-credit transactions, she said.
Itau Asset has also been expanding its exposure to FIDCs, a popular Brazilian structured-credit vehicle backed by receivables.
Delbem said the firm is focusing on private placements and tailored credit transactions in sectors where it believes its proprietary risk analysis provides an edge.
The firm has about 600 billion reais (US$118bil) under management in liquid and semi-liquid credit funds.
Local credit funds posted outflows of about 12 billion reais in May, including investment vehicles with more than 50% of their assets invested in credit from companies and banks, according to data from asset manager JGP Global Gestao de Recursos Ltda. That’s down from outflows of nearly 29 billion reais in April.
“The market has calmed down,” Delbem said. Credit spreads have begun to tighten again in recent weeks as buyers return, she added, while outflows from traditional credit funds are showing signs of easing. — Bloomberg
— “Redemptions remain well under control.”
The industry is better positioned to withstand bouts of risk aversion than in previous cycles after building up liquidity during two years of strong returns and increased capital-market financing, Delbem said.
The stock of so-called debentures, or plain vanilla corporate bonds, has more than doubled into a 1.4 trillion reais industry since 2018, when Brazil’s capital markets association started collecting the data.
“There is no pressure to sell high-quality assets to meet redemptions,” she said, adding that the repricing has largely bypassed the highest-quality issuers, with AAA-rated local bonds continuing to attract strong demand.
Delbem is not alone in her optimism that the industry’s most turbulent period may be over.
The recent widening in spreads has made credit funds significantly more attractive than they were a few months ago, said Conrado Rocha, a partner and portfolio manager at Polo Capital.
“Funds are offering much better returns than they were in December. That’s creating opportunities,” Rocha said. -
