Brazil’s pension fund industry has assets under management of around R$140 billion ($56 billion) and about two million contributors and beneficiaries. There are nearly 250 such funds, but only a very few matter. The funds managed by state-owned companies, now reduced to a handful, are a cornerstone of the capital markets and key players in the politics of corporate Brazil. But only now are they being made accountable to their regulator and to their contributors.
The funds, such as those of Banco do Brasil, Petrobras and Caixa Economica Federal, are large enough to dictate terms to virtually any company they have invested in.
For years they operated almost as a law unto themselves, sometimes making questionable investment decisions and even acting as major investors in the privatization auctions of the late 1990s when they ensured that the sales of Companhia Vale do Rio Doce, Embraer and the Telebras telephone system would be successful.
Eleazar de Carvalho, the president of BNDESPar, the investment arm of Brazil’s national development bank, says that the shift away from defined benefit pensions to defined contribution schemes has further increased public scrutiny of the pension funds. Employees want to be certain that their contributions are being invested wisely to ensure a reasonable pension on retirement.
Previ, Banco do Brasil’s pension fund, is the largest and one of the most active funds. It has played an important role in the major financial operations and corporate finance deals of the last decade and is a shareholder in almost every privatized company. It has led the rescue of some private-sector companies, such as Perdigão, the São Paulo food company. Perdigão faced bankruptcy until Previ, together with private-sector investors, recapitalized the company, installed profesional management and set new team performances targets. Previ has R$37 billion in assets under management and 140,000 participants. Petros, the pension fund of Petrobras, the oil company, is also emerging from the shadows. It has assets of R$13 billion and 90,000 contributors and beneficiaries.
Under new rules the fund is adopting, directors will be liable for any irregular decisions taken on their watch. In another new departure, the fund is soon going to require that investment analyses and approvals be clearly documented in order to leave a clear audit trail. It may all be pretty basic, but it is a beginning and changes like these can only do good.
The social security ministry intervened in Portus, the state-owned port company’s fund after it ran up R$166 million in unfunded future liabilities. It has assets and unpaid contributions of R$700 million. Auditors sent in by the company found that Portus had over-estimated the value of its assets and under-reported its liabilities.