Brazil's leading industrialists have begun a charm offensive in the Gulf, aiming to coax Arab investors into a market with small but growing links to the Middle East.
The South American nation, now the sixth-biggest economy in the world, is poised for even greater growth as industrial titans such as the mining company Vale and the aircraft manufacturer Embraer expand internationally and the country prepares to host the 2014 Fifa World Cup and the 2016 Olympic Games.
"Brazil is, to some extent, booming," said Fernando Henrique Cardoso, a former president of Brazil who is leading a trade delegation to the UAE and Qatar this week.
"We're trying to extend our contact to different parts of the world."
He was accompanied by delegates from Itaú Unibanco, a Latin American lender that is the eighth-largest in the world and is eyeing expansion to Abu Dhabi, Qatar and Saudi Arabia.
Last year, foreign direct investment in Brazil from Gulf countries totalled less than US$5 billion (Dh18.36bn), out of a total of $66.7bn, said Rainer Schwarz, the head of Itaú Unibanco's current Middle East office in Dubai.
The country was seeking to capitalise further on the investment flows that had made Brazil the "big B of the Brics", said Ricardo Villela Marino, a partner of Itaú Unibanco and chief executive of the bank's Latin American operations.
"Brazil needs a lot of capital for infrastructure, real estate, the energy sector and education," he said.
The links between the UAE and Brazil are steadily growing, as more Gulf investors look to the fast-growing Latin American economy for investment returns.
Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, last month acquired a $2bn stake in Brazil's EBX Group, owned by Eike Batista, Brazil's richest man.
The deal - Mubadala's first venture into Brazil - indicated a growing level of confidence among Middle Eastern investors in Latin America, said Jawad Qasim, the head of Itaú's investment banking business in the Middle East.
"If they were afraid, I don't think they'd have done it," he said.
The Dubai Department of Tourism and Commerce Marketing has also targeted Brazil in an effort to expand the emirate's tourism trade, while last month the Abu Dhabi Investment Authority hired a leader for its Latin America desk.
Latin America is steadily becoming more important to the Gulf as investors seek new territory, said Aziz Unan, a fund manager at Renaissance Asset Managers who covers eastern European and Middle Eastern stocks.
"It's a new geographic area, historically with limited trade links," he said.
And similar to the Middle East, Latin America was also poised to benefit from a booming youth population and a rising middle class, Mr Unan said.
"From a demographic point of view, there are not that many areas globally where you'll find favourable demographic situations," he said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
