They achieved an accumulated return of between 15% and 20% per year for more than a decade and it wasn’t with stocks – 11/11/2023 – From Grão to Grão

When we think about financial investments, traditional ones come to mind: fixed income and shares. However, another class of investments, more developed internationally, has gained momentum in Brazil. These are alternative investments. And in this type of investment, one manager stood out in the last decade, Jive Investimentos.

To better explain these alternative investments, I interviewed Guilherme Ferreira, partner at Jive Investimentos. Ferreira is a lawyer by training and is one of the founders of Jive.

Remember when in 2008 the financial world almost collapsed with the collapse of the American bank Lehman Brothers? That was the seed for the birth of this manager.

It was born in 2010 with the acquisition of Lehman’s assets in Brazil. Due to their condition, these assets are known by their English name Distressed Assets (stressed assets). In the interview, Guilherme explains what these investments are with which the manager has the most experience.

At that time, they purchased the bank’s credit portfolio for just R$27 million, but it had a nominal value of R$850 million, that is, almost a 97% discount on its face value.

This is the type of investment that an individual could hardly make alone due to the scale and lack of legal experience to analyze whether it is a good business and at what price. Not to mention the experience in execution.

In fact, few in Brazil have this capacity, technology and experience. For this same reason, there are more unexploited opportunities and the potential return is greater.

In its history, only a few moments have Jive allowed investors to make investments in one of its funds. The funds are not like traditional ones in which you can invest and redeem at any time. Investment windows occurred every 3 to 4 years apart.

The last fund opened at the beginning of 2023. Until last Wednesday (November 8), it had appreciated by 17.53% in the year, equivalent to 160% of the CDI. In this same period, the Ibovespa rose 9.21% and the average of multimarket funds, 4.21%.

In their history, the four funds yielded between 160% and 200% of the CDI.

In addition to outperforming traditional investment returns, they also benefit from reducing risk, as the assets they invest in are uncorrelated with the market.

In other words, they win even more when others lose. And it is with this explanation that I begin the interview with Guilherme.

Is it true that you usually win when most other traditional managers are losing? How does this happen?

Yes, it’s true that our fund tends to make money when others are struggling for two reasons.

First, our investments are often countercyclical. For example, for us more opportunities arise when there is default, like what happened this year with Americanas and Light and others, or due to a lack of liquidity, for example, which happens when there is a rise in interest rates.

At these times, there are falls in asset prices, traditional managers lose and opportunities arise in stressed assets. In other words, we are often operating in the opposite direction to other managers.

The second reason is the characteristic decorrelation of our investments. Our investments are more dependent on establishing credits with good guarantees that have an intrinsic value greater than the acquisition cost than on determining the direction in which the dollar, the Stock Exchange or even whether the economy is expanding more or less.

In other words, unlike traditional asset managers, our strategy does not depend on getting the scenario right where macroeconomic variables should be directed. But, make investments that behave well across a wide spectrum of these variables, as they are little dependent on them.

You invest in and specialize in stressed assets (Distressed assets) It is Special Situation. What are these investments?

A stressed asset is one that is outside of its normal condition. For example, a loan that is late, or a property that has an occupancy, legal or environmental problem.

The true value of these assets is hidden by some problem and, until this problem is resolved, they are traded at a large discount, offering a great investment opportunity.

We say that a company is in a “special situation” when it is going through a type of disruptive event, whether corporate, such as a merger, acquisition or restructuring, financial, such as a judicial recovery, or even strategic, such as a change in its market. .

In these situations, the company usually needs quick capital to overcome the current challenge or take advantage of the opportunity. Due to their condition, these companies are willing to remunerate this capital with exceptional returns.

Therefore, the potential return on these investments is high.

Speaking of which, what is the expected return and risk of these assets?

Distressed and Special Situations funds seek high returns, generally above 20% per year, to compensate the investor for risks and lack of short-term liquidity.

There are different approaches, with some funds focusing on specific transactions or just one class of assets, such as credit, real estate or court orders. Other funds prefer a broader approach that tries to capture the returns of the asset class as a whole, as we do at Jive.

The philosophy is that, by diversifying into delayed credits, financing for companies in special situations, real estate and judicial assets, we are able to obtain consistent returns with less risk and less volatility than products that focus only on one operation or asset class.

What is the investment and liquidity horizon that the investor should pay attention to in this type of investment?

Most funds in this class have a long term, of 5 years or more. Liquidity usually happens after the third year, as assets are recovered or sold and capital is returned to investors with the return.

How can investors invest in these products? Can he invest directly?

This is an asset class that until recently was exclusive to large institutional investors such as foundations, sovereign wealth funds and wealthy clients.

A few years ago, products began to appear available to individual investors.

Today, the main investment platforms periodically offer products with this profile to their clients, although limited to qualified investors, that is, those who have one million reais or more in financial assets.

Although it is possible to invest directly in some of the types of assets that these funds buy, it is recommended that investors who do not have extensive financial and legal experience choose a manager they trust and invest through them.

Why are these investments a good allocation for a portfolio?

These investments are a good allocation for a portfolio because they bring diversification, decorrelation and the expectation of high returns.

Diversification because most investors’ applications are still very focused on traditional products such as fixed income, shares and multimarket funds.

Decorrelation because, in the vast majority of cases, the return on stressed investments is little affected by what is happening in the rest of the financial market.

This means that the investor’s portfolio will not move entirely in the same direction if an extraordinary event occurs, such as the pandemic, or to talk about something more local, such as the truck drivers’ strike or the leak of Joesley Batista’s audios.

The third advantage is that these products have a high expected return, especially over long-term horizons.

What sets Jive apart as a manager for these products?

Jive is a pioneer in the origination, acquisition, management and recovery of stressed and special situation assets.

It has been more than 13 years of purchasing late credits, properties with problems and judicial assets and financing companies in special situations.

We have one track record of significant returns for our investors and we have built a unique platform in the country, with a lot of technology, data and expertise to transform risks into opportunities with superior returns for our investors, shareholders and society.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

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