Investment One seeks niche in busy Brazilian finance space

Bernardo Parnes, co-founder and CEO of financial boutique Investment One Partners, says there is “clearly space” in the Brazilian market for independent consultancies such as his, which opened its doors at the beginning of this year.

Parnes, who was CEO of Deutsche Bank’s Latin American investment banking franchise until the German bank decided on wholesale withdrawal from the region, decided to establish his own firm after leaving in August.

His new firm will focus on two areas: financial consultancy for corporates looking to restructure, move through M&A transactions or who want independent advice on other transformational transactions such as IPOs.

The other “lateral” will be a wealth management service focused on ultra-high net-worth individuals and families – those with a minimum of R$50 million. Investment One will offer aggregation management advice for these clients who typically have their assets at multiple onshore and offshore banks.

Investment One Partners is based on Faria Lima in São Paulo and has 12 full-time employees. It has completed its first mandate, advising União Química Farmacêutica in its acquisition of Zoetis’ (formerly Pfizer) plant in Brazil, and Parnes says the bank is talking to other companies about potential M&A transactions, both on the buy side and the sell side, and he says he has one potential pre-IPO mandate.

“We have some IB mandates and we have closed one in the wealth management advisory,” says Parnes. “But we want to develop slowly – our biggest asset is our name and reputation. We offer a personalized boutique with senior advisers – we don’t have any kind of conflict because we don’t offer financing.”

However, the firm does plan to run a small private equity group that will focus on the healthcare sector – aided by the sector speciality of partner Fabio Jung, who joins from Bank of America Merrill Lynch. Parnes says he is relishing returning to client work on a daily basis. “I have just been to a site visit,” he says when welcoming Euromoney to his new office. “I think the last one before today was in 1997 for the Vale privatization.”

Parnes declines to talk in depth about Deutsche Bank’s decision to leave Latin America and says his departure was amicable and logical following that decision. He believes that the bank should have retained its presence in Mexico, Argentina and Brazil – the bank retains a slimmed down São Paulo office – but that ultimately the withdrawal was part of a wider strategic rationalization of the bank’s global presence.

Parnes says there will be synergies between the IB consulting side of the business and the wealth management service, which is being headed by Raphael Zagury, who also joins as partner from Deutsche Bank and had previously worked for Bank of America Merrill Lynch and Goldman Sachs.

Brazil has a competitive wealth management market, but Zagury believes there is a need for an aggregation advisory service for the country’s richest families.

“These people almost always have assets at multiple banks in Brazil – and usually a couple of international banks as well,” he says. “There can be a lack of awareness of the risks that he or she is running in particular asset classes.

“This is particularly true when you add in corporate assets to the full picture: often risks within a business are too closely correlated with family assets and even in international portfolios – Brazilians can quite often buy international bonds for their offshore portfolios instead of diversifying in a broader manner.”

Zagury says Investment One will charge a flat management fee. “We had a lot of discussions about our business model, but ultimately we wanted to align our interests to the client and a flat fee based on the assets is the best way to do this,” he says.

Zagury argues performance fees align interests in the upside of performance, but a lot of his service will be protecting on the downside – encouraging reach for return doesn’t reflect this wealth-preservation aspect.

“A portfolio return should only be a consequence of a certain level of risk,” he says. “Our duty to clients is on managing their risk, first and foremost. A flat fee allows us to purely focus on this mandate.”

One investment banker at a full-service firm queries whether the Brazilian market has the scale for independents to thrive. “I was in New York last week and they had three IPOs on the day I visited the exchange,” he said. “There were hundreds last year. This year, Brazil would be happy if we did six, so I think the markets are very different.

“In the US, the top banks focus on the deals they want and there is still room for second-tier banks and independents. That simply isn’t the case in Brazil – there isn’t the scale for us all to generate enough fees to sustain these independents.”

However, Parnes takes comfort from the growth of independent investment banks in the US, such as Moelis, which has now opened an office in Brazil. “We see the existence of other independent banks as proof that there is room for these type of services in Brazil – and that will only grow as the economy recovers,” says Parnes.

“Our aim is to give clients the assurance that they will be discussing transformational ideas with senior bankers, who will then be the same people who lead them through negotiations.

“We want to make a lot of money, but we are not desperate for fees. Our aim in starting this firm was to build very deep technical expertise to deliver a top-tier job for our clients – but also one that isn’t political and has a fun working ambiance.”

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