Brazil Targeting Mideast Money With Fund First: Islamic Finance

Jun 02, 2014 5:07 am ET

June 2 (Bloomberg) -- Banco do Brasil SA, Latin America’s biggest bank by assets, is courting investors in the Middle East and Asia as it prepares to start Brazil’s first Shariah- compliant equity fund this month.

The fund will focus on shares of companies in industries including commodities, energy, mining and retail, according to Carlos Takahashi, chief executive officer of BB DTVM, the asset management division of the lender. Representatives of the bank last month met investors in the United Arab Emirates, Singapore and Hong Kong, he said, declining to comment on the size of the fund or expected returns.

“We’ve been studying and considering this fund for the past three years, and we recognize we are ready to launch it,” Takahashi said in a phone interview from Sao Paulo May 23. “It took us a while to understand all of the particularities of Islamic finances, and it’s important for us to reach for those investors and get closer to them.”

BB DTVM, Brazil’s biggest fund manager, is the latest in a string of money managers trying to secure a slice of the fast- growing Shariah-compliant industry. Lenders that adhere to the religion’s ban on interest will have 70 million customers by 2018, up from 38 million last year, helping to double Islamic banking assets to $3.4 trillion over the period, according to Ernst & Young LLP.

Best Performing

The world’s best-performing Shariah-compliant equity- focused fund in the past 12 months is National Bank of Abu Dhabi PJSC’s MENA Growth Fund, which has returned 69 percent, according to data compiled by Bloomberg. The Ibovespa index, Brazil’s Sao Paulo-based benchmark gauge of stocks, lost 5 percent in the period, the data show.

“In terms of risk profile, these asset classes are new to the industry and so from a diversification standpoint there should be interest,” Abdul Kadir Hussain, who oversees about $700 million as CEO at Mashreq Capital DIFC Ltd., said by phone from Dubai yesterday.

Other funds are springing up to tap the Shariah-compliant industry’s growth. Asset manager Threadneedle Investments got a license to offer Islamic products to institutional investors in Malaysia in January. The Asian country’s RHB Asset Management began a new equity and fixed income fund targeting the Asia Pacific region, its 10th Shariah-compliant offering.

In London and Dubai, RiverCrossing Capital Partners, an Islamic alternative investment company, set up in April with a $125 million fund investing in U.S. real estate.

“The jury is still out on how big the market for these will be outside the Islamic banks,” Hussain said. “Depositors are going to have to take cash out and put it in these other assets. One would think that will happen, but it’s early days.”

Fat Cattle

Brazil had a Muslim population of about 35,000 people at the end of 2010, according to the most recent data compiled by the national statistics agency, known as IBGE. Most Muslims living in Latin America’s biggest economy are located in the Southeast and Southern parts of the country, according to IBGE.

Banco do Brasil’s new fund will be managed in Brazil and marketed by partner brokerage houses in the Middle East and Asia, Takahashi said. BB DTVM had 512 billion reais ($228 billion) of assets under management, including bonds and equities as of the end of April, according to data provided by local capital markets association known as Anbima.

If the fund is successful it won’t be the first time Middle East Islamic cash has found its way to Brazil. Abu Dhabi Equity Partners, a boutique investment bank based in the Cayman Islands, started a $25 million financing program to fatten cattle held by ranchers in Goias and Sao Paulo states, it said in January.