FINVEST´s purpose is to make private credit in Brazil more efficient – less expensive and more widely available – than what traditional banks have to offer, particularly in the real estate sector.
Disruption through New Capital Market Instruments
In a country where credit has historically been overwhelmingly provided by banks, FINVEST has been a pioneer in exploring the product-based regulatory disruption brought about by new capital markets instruments. This is what occurred in Brazil after its economy stabilized with the Real Plan and new capital market instruments were introduced, including mortgage-backed securities (CRIs), agricultural asset-based securities (CRAs), collateralized loan obligations (FIDCs) and REITs. Accordingly, FINVEST and/or its founder built one of the leading issuers of CRIs, the second largest manager of FIDCs and one of the largest managers of REITs.
Very frequently, every one of these “products” requires a different vehicle, regulation-wise, and the establishment of a separate company. FINVEST created various affiliates such as a SUSEP-regulated insurance company, a CVM-regulated securitization company as well as various funds managers, three Central bank-regulated broker dealers (DTVM) and, more recently, a digital credit bank (SCD). In this process, FINVEST mostly functions as a builder of companies, providing them with capital and management as required. While preferring to hold controlling positions in its affiliates, FINVEST may sometimes raise additional capital by inviting like-minded and value-adding co-investors to join in. In most cases, FINVEST´s partners continue to hold leadership and director positions in its companies regardless of their stage of development.
Due to the permanent nature of its capital, FINVEST is not required to exit its affiliates like private equity funds but may, eventually, sell certain affiliates as they mature or as long-term market and competitive conditions change over time. Such was the case when the Brazilian populist government decided to relinquish fiscal prudence which, as expected, resulted in higher interest rates. This situation, already very hostile to capital markets, was further exacerbated by an irresponsible increase in lending by the public sectors banks. FINVEST then realized that the weak prospects for RB Capital, totally dependent on local funding, justified the sale of the company to a very large international player with ample source of internal funding such as Japan’s Orix Corporation.