IE Business School - Murillo Silva

IMBA Application

Express Yourself

Question H

❖ What do you believe are the greatest challenges facing the sector or industry you would like to specialise in at IE? What role do you hope to be able to play in this sector or industry in the medium term?

The Brazilian Funds Industry

The Industry

The investment funds industry has grown significantly over the past 20 years. During this period, the number of funds has increased from 632 in Dec. 1993 to 14,097 in Dec. 2013. Net equity has risen from R$ 171 billion to R$ 2,478 billion in the same period - equivalent to an annualised rate of 14% growth.

The Challenges

❖ There are still few challenges to be addressed in the near future, including:

1. no equality between taxes on different investments products;

2. little incentive to investments;

3. funds as a channel for family saving.

Since investors make investment decisions based on the risk and return outlook, they consider the impact that taxes will have on their profits.

There are three special ways of tax impact on different

funds:

• Those that are exempt;

• Those that are taxed when the investment matures;

• Those that are periodically taxed, even if the investor has made no profit.

Tax Benefits❖ The government uses income

tax exemptions to encourage or foment specific markets, such as infrastructure, real estate and agribusiness sectors. There are also bonds exempt from income tax - Real Estate Letters of Credit (LCI - Letras de Crédito Imobiliário) and Agribusiness Letters of Credit (LCA – Letras de Crédito do Agronegócio). Another income tax exemption benefits investors of debentures from real estate funds and infrastructure.

Tax Benefits❖ Other investments are taxed when redeemed, that is the

case of some public bonds - floating rate bonds (LFT), Brazilian Inflation Linked Series (NTN-B Principal), and long-term deposits, such as Certificates of Deposit (CDB's – Certificado de Depósito Bancário) and Bank Deposit Receipts (RDB's – Recibo de Depósito Bancário).

This form of taxation clearly provides an advantage over the periodic taxation that applies to fixed income and multimarket

investment funds.

Savings Scenario

❖ Brazilians invest little. Currently, Brazil is ranked 26th in the world for individual saving, about US$ 950 or R$ 2500 per year. Since per capita income was R$ 24,000 in 2013, the average saving per person is comparable to little more than a month's salary. This is completely inadequate to forecast a scenario of financial security.

❖ The population needs to understand the importance of building savings and assets. Moreover, they should realize that funds are the most appropriate vehicle for society to accumulate wealth.

The Point❖ In the last 10 years the funds have shown attractive returns in US$:

However, it is noticeable that Multistrategy funds have been performing less than other funds category over the past 10 years. Still,

many investors choose to invest in Multistrategy since it is an option for

portfolio diversification and equity protection. Today, this category of investment accounts for 17% of the total industry, second

biggest.

The Goals

❖ My target is reduce portfolio risk through diversified strategies and improve performance for Multistrategy funds.

❖ Additionally, I will also take the opportunity to get connected and build a strong professional network with fellow students in order to address the family savings issue. I’m committed to provide pro bono financial advisory to those underprivileged individuals and families striving to build assets but can’t afford to engage a planner on their own.

The Goals & IE

❖ That’s where the IE International MBA comes in. Once I introduce the best financial practices acquired in the IMBA program, I will be able to motivate and encourage portfolio managers to rethink management. On top of that Lab Period will be invaluable to equip me with the tools and experience to tackle real-world problems.