Geoffrey Langlands, Bozano Simonsen
Geoffrey Langlands has had a hand in the Brazilian stock market for
the better part of 40 years. He was with Schroders, which he joined
straight out of Cambridge, when the firm sent him to Brazil for
three months as a temporary replacement for one of two guys in the
Brazilian rep office. He ended up staying a year for the firm, he
jokes, “because they fired him, and I think they forgot about me.”
He joined Banco Bozano, Simonsen in 1969.

On bringing foreign investors to Brazil in the late

The year 1988 was a time of considerable instability. After the
failure of the Cruzado Plan, 1987 had been a disastrous year on the
stock market; it was down 70% in dollar terms. But one thing that
was happening was that the US market started getting interested in
Brazil. At that time, foreign investors were restricted to
investing through a fund. In 1987, the government came up with the
idea of setting up a Brazil Fund, and there were two US investment
banks interested, Merrill and First Boston. We were the first to
propose legislation to the authorities in 1975, and we have a fund
which is today known as Annex I, which was an idea we had given to
the authorities in August 1973. It was a lengthy birth. So when
there were discussions on the Brazil Fund we suggested to the
authorities that one of the problems that international money
managers were concerned with was that the investment decisions were
delegated to a Brazilian manager. And the basic idea of Annex II,
which was also a suggestion we made to them, was that this could
facilitate managers to at least make the investment decisions.
Based on this suggestion, we set up a fund with Batterymarch which
raised just slightly less than $100 million. So then Annex III was
formed, which was the Brazil Fund, and in fact the people from the
Brazil Fund were a little upset that we had managed to get in first
with the Batterymarch fund. I remember that Dean Le Baron from
Batterymarch and I went over to the CVM, and the then-chairman of
the CVM about fell out of his chair when Dean said he wanted to
bring in $250 million. So the chairman asked him if he could cool
it and start off with $100 million. I think it would have been a
lot more than $100 million if it hadn’t been for the problems at
the end of 1987. But international money managers still had to
invest through funds. So apart from that, we managed to raise a lot
of money with other fund managers investing in our original Annex I
fund, which grew by about $40 million in new money just in 1987
when the market here was dreadful. I remember the time somebody
called me up at the end of 1986 and said they wanted to invest in
our fund. I said to the guy, “Are you sure?” He was sure, although
if he’d waited a bit he would have got in a bit more cheaply.I
remember in 1987, I went to Boston for a lunchtime seminar. There
was this one fellow that kept saying, “Well, you know, Brazil is a
military dictatorship.” I said, “No, it’s not a military
dictatorship; it hasn’t been for over two years.” And he said,
“We’ll, if it’s not a military dictatorship then the politicians
don’t know what they’re doing anyway.” So I said to him, “Have you
ever been to Brazil?” and he said, “No.” So I invited him to come
down and have a look. He said, “OK, how about next week?” I said,
“Well, give me a little more time to prepare.” So he came down
three weeks later, and one of the things I did was to take him to
see some factories in São Paulo. On the way there, we ran into a
dreadful traffic jam and the air conditioning wasn’t working, and
there were guys selling stuff on the sidewalk, and holes in the
pavement, and mud everywhere, and even I was starting to get
depressed. And suddenly, this fellow says, “I love it! I love this
place, I want to put money into it!” I thought he’d gone crazy; he
hadn’t even seen any factories yet and we were stuck in a traffic
jam.But it wasn’t until May 1991 that Annex IV was born, and Annex
IV is what really revolutionized the flow of money into Brazil.
That was the single most important event in this period. The
Brazilian authorities, rightly or wrongly, are concerned with
making sure that this is institutional investor money and not
individual investors. I think that concern is with Brazilians who
have money offshore doing a round trip and thus avoiding tax. So
all the formalities are concerned with proving that it is
institutional money. That’s the situation to this day, and I think
the authorities have been quite efficient in making it as simple as
possible, although we get a lot of moaning and groaning from
international clients who aren’t used to these things in other
countries. But once they’ve done it the first time, it works pretty

On what Cardoso’s team has done for Brazil…
Unquestionably, the current financial team, which goes all the way
back to the middle of 1993 when Fernando Henrique Cardoso became
finance minister, has introduced a note of seriousness and
constancy which never existed before. The major feat was bringing
economic stability to Brazil. I can remember I took some clients up
to have an interview with Fernando Henrique when he was still
finance minister. This must have been November 1993, I think, and I
remember him saying, “Look, everything we’re going to do,
everybody’s going to have advance notice of. They’re going to know
exactly what the plan is, and whatever I tell you now is stuff
you’re going to be able to read in the newspapers anyway. There
aren’t going to be any surprises.” What used to happen before is
that we’d sit around chewing our fingernails waiting for the new
package to come, and all of a sudden you’d be, as in the Collor
plan, surprised by a huge confiscation of financial assets or some
weird new tax on all financial assets, or hurt on the indexation on
those assets. “Oh, sorry boys, inflation was 80% but we’re only
going to adjust the accounts by 40%,” that kind of thing. And then
you didn’t know which kind of debt security you should be in,
because one was full indexation, or prefixed indexation, and one of
them was going to be favored in the new package. This time we’ve
had none of these disagreeable surprises, at least not resulting
from the machinations of the authorities. The Real Plan is
following exactly the course that Fernando Henrique told everybody
in 1993 it was going to follow, and the big disappointment of
course is that the reforms have come through much more slowly. That
was going to be the big event to consolidate the plan. Because the
other things were less dependent on congressional approval, they
were easier to prepare. For instance, renegotiating all the local
government debts and stopping them from borrowing like there was no
tomorrow, cleaning up the state banking sector, and of course
introducing a new currency and deindexing the economy. All this was
foreseen and took place.

On the challenges of the future…
What I’m a little bit worried about now is that we’ve had economic
stability for about four years, and people are saying, “Now we’ve
got to get the economy warmed up again so that everybody can have a
job”-that’s what worries me. And they forget that they had an
extraordinary gain, especially the lower classes, in their
purchasing power in this turnover from hyperinflation. Mario
Simonsen always used to say, “The worst tax you can levy is
inflation, because it affects those people who can’t afford to pay
it.”Hopefully, it is still clear enough in people’s minds, and the
people that will be making the propaganda for Fernando Henrique’s
re-election will drive this home, “In case you’ve forgotten.