SAO PAULO, April 4 (Reuters) - Fundação Cesp is betting on equities and hedge fund investments to offset the impact of a faster-than-expected decline in Brazilian interest rates that may lead dozens of fellow pension funds to miss their return targets this year, Chief Executive Officer Martin Glogowsky said in an interview.
Over the past six months, São Paulo-based pension fund Funcesp has been tactically exiting positions in government debt to reduce exposure to the asset class, Glogowsky said. Funcesp has about 85 percent of the 28 billion reais ($9 billion) it oversees mostly in fixed-rate government notes.
Increasing allocations in domestic stocks, which last year rallied the most in seven years, and in hedge fund vehicles offers a better alternative than private-equity or real-estate investment trusts to keep risk low while meeting Funcesp’s 11 percent actuarial rate of return targeted for this year.
Unlike Funcesp, fellow pension funds lack the flexibility to scale down positions in government debt without suffering, Glogowsky said, without elaborating on names or cases. Domestic pension funds have posted hefty deficits over the past four years, as liabilities rose and returns slumped in the wake of a deep political and economic crisis.
“It’s the kind of tactical move that we can do at this point,” Glogowsky said on Monday, noting that the fund is paying equal attention to profitability as well as liquidity.
His comments underscore how Brazil’s largest pension funds are changing their strategies to cope in the light of President Michel Temer’s policies to revive an economy rattled by three years of recession. Some funds, especially those running money for state workers, remain saddled with enormous losses in the wake of ill-timed investment decisions.
Economists expect the central bank to cut the benchmark Selic interest rate by at least 0.75 percentage points, with odds rising that the reduction could well reach a full point when policymakers meet on April 12.
At the end of last year, pension funds had assets equivalent to 12.6 percent of gross domestic product. Ten years ago, that number was close to 17 percent of GDP.
$1 = 3.1142 reais Writing by Guillermo Parra-Bernal; Editing by Lisa Shumaker