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Source: Itau Unibanco 90-year anniversary website

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Family Office Powered by Mining Creates $6 Billion Money Machine

The Moreira Salles name is known throughout Brazil. But few anywhere in the world are familiar with the family office that manages its vast fortune.

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Spend any time in Brazil and you’ll probably hear about — and hand money over to — the Moreira Salles family.

It co-owns the nation’s largest bank, controls 80% of the world’s supply of a critical rare-earth metal used in everything from cars to pacemakers, and holds stakes in a host of companies, including the maker of the ubiquitous Havaianas flip flops. The family name is emblazoned across museums, entrenched in culture and rooted deeply in finance. All told, the family is worth over $20 billion, according to the Bloomberg Billionaires Index.

But there’s one prized endeavor it has assiduously kept out of the public eye: The money-multiplying machine that handles the family fortune.

Few outside the country’s banking circles have ever heard of Brasil Warrant Gestao de Investimentos, or BWGI. Yet the family office, which began in its current form in 2008, now manages over $6 billion and employs about 50 people in Sao Paulo and New York trading stocks, bonds, private equity, commodities and currencies around the world, a review of regulatory filings shows. One of its main funds — required by Brazilian law to make public disclosures — provides a glimpse of just how successful it has been.

The $860 million Mantiqueira hedge fund just had its best month ever in December and has returned more than 170% over the past five years, beating almost all its peers, data compiled by Bloomberg show. That’s equal to a compound rate of roughly 22% a year.

“I joke that our single client doesn’t withdraw his money when we’re doing poorly — he withdraws the managers themselves and hires new ones,” Demosthenes Madureira de Pinho Neto, a former high-ranking central bank official who leads BWGI, said last year in a rare public appearance hosted by impact-investing firm VRB. “So, the pressure is there for better performance.”

Pinho Neto, who was poached from the family’s lending giant, Itau Unibanco Holding, declined to talk about BWGI, as did the powerful clan’s four brothers — Fernando, Pedro, Joao and Walter. Current and former employees contacted by Bloomberg News also declined to discuss the family office.

Itau Unibanco Holding SA Bank Branches As The Company Postpones Acquisition Of CorpBanc
The powerful clan’s stake in regional bank giant Itau is worth $6 billion.
Photographer: Gustavo Gomes/Bloomberg

Family offices have been around for centuries, managing investments, tax affairs, as well as personal lives for the wealthy. But they’ve exploded in number in recent decades as powerful industrial, retail and real estate families like Italy’s Ferrero clan, Hong Kong’s Li Ka-Shing and the Wertheimers of the Chanel empire have built sophisticated operations to discreetly invest their burgeoning personal fortunes.

In Brazil, where inequality runs deep and many of the country’s biggest companies are family owned, none are bigger than BWGI. In the past, rich Brazilians could easily park their money in government bonds and earn a decent low-risk return because interest rates were sky high. But more recently, the central bank has pushed down rates to record lows, forcing wealthy families to get more creative.

The Moreira Salles family brought Pinho Neto onboard to oversee BWGI in 2011, shortly after selling a minority stake in Cia. Brasileira de Metalurgia & Mineracao, its niobium producer, which yielded almost $4 billion at the time.

“Our main priority from the start was diversifying,” Pinho Neto said in the web broadcast. “So liquidity was always the first — and the main — concern in what we do here. The second was trying some regional diversification.”

Daily Life Around Brazil's Vibrant Financial Center Ahead Of GDP Figures
Havaianas flip flops help feed the family’s money machine.
Photographer: Jessica Nolte/Bloomberg

Almost no information about BWGI is publicly available, although a few details have emerged. Most of the money that the firm manages is held in lower-risk investments that seek to match the market’s returns. In recent years though, BWGI’s operations have grown increasingly more complex, adding new teams for riskier bets and putting money to work globally, according to people with knowledge of the firm’s operations.

It’s not hard to understand why the family would want to diversify away from Brazil. The country is once again immersed in turmoil, as President Jair Bolsonaro shows increasing signs he’s willing to sacrifice market-friendly policies to boost his popularity. On Monday, markets tumbled after Bolsonaro announced late Friday he would replace the head of a key state-controlled oil company.

The family office — named after a British firm that its patriarch, Walther Moreira Salles, a former finance minister and U.S. ambassador, bought in the 1950s — mostly recruits from Brazil’s top echelons of banking and hedge funds, which helps to keep its inner workings private.

Today, the firm has invested almost two-thirds of its money outside Brazil, filings show. BWGI has its own hedge funds, a private-equity unit and a team that selects global asset managers to invest on its behalf. To some degree, its structure was inspired by big university endowments in the U.S., like Yale University’s, which blends long-term asset allocation with alternative investments and real estate. Teams compete for a bigger share of the dividend money constantly trickling in from the family’s companies.

relates to Family Office Powered by Mining Creates $6 Billion Money Machine
Board of the Instituto Moreira Salles, 1992. Walther, the family patriarch, is seated, second from the left. Fernando and Joao are on the upper right.
Source: Itau Unibanco’s 90-year anniversary website

The Moreira Salles family has received about 13 billion reais in dividends (equal to $2.45 billion in today’s dollars) from Itau and CBMM, as the niobium miner is known, from 2017 to 2019, according to Bloomberg calculations based on filings.

The family also profits from its interest in Eneva SA, a power company built out of the natural-gas spoils of former billionaire Eike Batista’s collapsed empire, and its almost 30% stake in Alpargatas SA, the maker of Havaianas sandals donned by the likes of Kim Kardashian and Gwyneth Paltrow. The clan also owns a company that grows citrus crops.

Some of the largess has ended up in the Mantiqueira Master hedge fund, one of BWGI’s flagship investment vehicles. Created in 2015 and run by a team that includes Marcelo Kishimoto, former head of the volatility desk on Itau’s proprietary trading team, the fund soared 42% last year alone, data compiled by Bloomberg show.

The fund has free reign to borrow as much as it wants to amplify returns and has been helped by leveraged bets in Brazil’s government bonds and undisclosed foreign investments, according to a review of filings. A depreciating real, which has fallen about 20% against the dollar in the past 12 months, may have also boosted overseas returns.

relates to Family Office Powered by Mining Creates $6 Billion Money Machine
Niobium riches
Source: Brasileira de Metalurgia & Mineracao

The origins of the Moreira Salles family fortune can be traced back a century. Its banking business was created in 1924, and after a series of mergers, eventually led to a roughly 9% stake in Itau with controlling rights. That interest is currently worth about $6 billion. The family started CBMM in 1955. The company generated roughly 8.6 billion reais in net revenue in 2019, latest available figures show.

The brothers have kept the family at the forefront of business and culture in Brazil. The oldest sibling, Fernando, 75, sat on the boards of both Itau and CBMM. Pedro, 61, who helped orchestrate the creation of Itau Unibanco through an alliance with two other rich Brazilian families, is the bank’s co-chairman. Walter, 64, is a movie director, whose films include the adaptation of Jack Kerouac’s “On the Road,” while Joao, 58, is the founder and publisher of a monthly literary magazine modeled after The New Yorker.

Pedro Moreira Salles
Pedro, co-chairman of Itau
Photographer: Paulo Fridman/Bloomberg

The clan is now paving the way for the next generation. That includes BWGI. Pedro’s son, Joao Moreira Salles, a former JPMorgan Chase & Co. investment banker in New York, has sat on the boards of several of the family’s companies. He was installed at BWGI and now helps oversee the clan’s money alongside Pinho Neto.

“The biggest challenge ahead is managing change,” said Pedro Moreira Salles in a September webcast, referring to the family’s firms. “It’s a long, arduous process, but our companies will have to learn how to reinvent their legacy and how to transform over time.”

(Updates with Jair Bolsonaro’s intervention in 13th paragraph.)