Principal Financial Group's entry into the Brazilian pension market is the second step in a global expansion plan, a top executive says.
Last week the Des Moines-based financial services company acquired a 42% stake in BrasilPrev Previdencia Privada SA for about $108 million. Banco do Brasil is the other major shareholder, with a 49.99% stake. The remainder is owned by outside shareholders.
In August, Principal acquired the Australian money management arm of the former Bankers Trust Corp. from Deutsche Bank.
And there is a "very high likelihood" that Principal will enter the Japanese market in 2000 and the British market sometime thereafter, said Norman Sorenson, president of Principal International Inc., which oversees business development abroad.
Principal has been in discussions with a "number of parties" in both countries, he said, but has yet to determine whether it would go it alone or form a joint venture.
Principal's international division focuses on retirement services and institutional asset management, with an emphasis on small and medium-size businesses, Mr. Sorenson said.
In Brazil, Principal joins a stream of U.S.-based asset managers heading south to profit from the privatization of Brazil's social security system, among them Mellon Bank Corp. of Pittsburgh and American International Group Inc. of New York.
"If providers are looking to get new assets, they either have to turn to the small-plan market in the U.S. or look abroad," said Robert H. Martin, program manager for San Francisco consultant Spectrem Group's global retirement markets study.
Brazil represents an especially good opportunity, he said. According to Spectrem's study, assets in Brazilian private pension plans, which totaled $90 billion at the end of 1998, will double by the end of 2002. And, according to the study, the pension market there has room to grow, with only a 20% market penetration. Spectrem found that while 1,500 Brazilian companies offer private pension funds, another 7,000 are interested in doing so.
U.S. firms bring a lot to the table, Mr. Martin said, such as expertise in defined-contribution plans, a relatively undeveloped but growing market in Brazil.
Furthermore, Brazil is loosening regulations that restrict the extent to which private pensions can invest in foreign securities, so fund managers familiar with non-Brazilian investments make particularly valued partners, he said.
BrasilPrev's assets under management -- currently about $600 million -- have grown by 35% to 45% over the past few years, Mr. Sorensen said. He said he expects that number to grow to $1 billion within a year and to $2 to $3 billion within five years.
To reach that goal, BrasilPrev, which caters mainly to individuals, will expand into the small- and medium-plan market. And BrasilPrev might try to expand by buying some smaller Brazilian pension companies, though there are no acquisitions planned, he said.
Mr. Sorensen said Principal will probably invest an additional $20 million to $25 million in BrasilPrev over the next three years, mostly in technology.
Principal and Banco do Brasil will share management in BrasilPrev. BrasilPrev's current chief executive, Fuad Norman, will keep his position. Principal will contribute four executives, including chief operating officer Gregg Narber.
As of June 30, Principal managed $106 billion in assets worldwide, including $60 billion in pension assets and $6 billion in its family of 18 mutual funds.
