Credit Suisse-Backed Firm to Raise Brazil Distressed-Asset Fund
7:00 AM BRT
March 23, 2015
(Bloomberg) — Peninsula Investimentos SA, the Brazilian asset-management firm backed by Credit Suisse Group AG, is planning to raise a fund of as much as 500 million reais ($155 million) to invest in distressed corporate assets as bankruptcies rise.
Peninsula hired five people to start the new business, according to Chief Executive Officer Antonio Quintella, one of the company’s founding partners. The Sao Paulo-based firm is targeting the second half of the year to start raising the fund, tapping both local and foreign investors and aiming for annual returns of 25 percent to 30 percent, Quintella said.
“We had a credit boom on the past 10 years, and for the very first time in Brazil we’ll see a serious economic downturn with both individuals and companies highly leveraged,” Quintella said in an interview earlier this month at Peninsula’s headquarters.
The largest corporate corruption probe in Brazilian history, involving Petroleo Brasileiro SA, is engulfing the state-owned oil company’s supply chain in a credit squeeze and freezing debt and equity issuance. At the same time, economists are predicting Brazil’s economy will return to recession this year while inflation remains above the central bank’s target.
The worsening economic outlook is already showing up in Brazil’s credit statistics. Debt more than 60 days overdue rose to a record 204 billion reais outstanding in January, according to the central bank, and the number of companies that filed for bankruptcy protection surged almost 34 percent in the 12 months through February, statistics from data-provider Serasa Experian show.
“State-owned banks that were sustaining the credit expansion in Brazil since the 2008 crisis are pulling back, and the severe exchange-rate devaluation is also squeezing companies with dollar debt,” said Quintella, referring to the currency’s 27 percent tumble against the dollar in the past six months.
Industries where many companies are already considered distressed include construction, sugar processing and alcohol production, said Rafael Fritsch, a partner at Peninsula who joined with his team in February from JGP Gestao de Credito Ltda to help raise and manage the new fund.
“More is coming as interest rates rise in Brazil and credit shrinks,” said Fritsch, who managed a 200 million reais distressed-asset fund at Rio de Janeiro-based JGP that’s closed to new investors. That fund is now jointly managed by JGP and Peninsula.
Prior to JGP, Fritsch was a portfolio manager at Arrowgrass Capital Partners LLP and traded distressed debt at Deutsche Bank AG and Bank of America Corp. in London. He also worked in JPMorgan Chase & Co.’s merger-advisory business.
Banks and corporations will be motivated to sell non-performing loans because a new bankruptcy law is turning out to be less friendly to creditors than previously expected, said Quintella, who was Credit Suisse’s highest-paid executive in 2010 with a compensation package of 15.6 million Swiss francs ($16 million).
Credit Suisse, which holds a minority non-voting stake in Peninsula, helped create the firm in 2012 with Quintella, who previously led the Americas for the Zurich-based bank. Peninsula now has about 45 employees and manages approximately 2.5 billion reais in a hedge fund that invests only in liquid assets.
Fritsch said Peninsula has an advantage in Brazil, because so far there isn’t that much competition.
“We don’t have big hedge funds that buy distressed assets here like we see in the U.S. and Europe,” Fritsch said. “This situation will probably change from now on.”