Everaldo Franca: You don’t have to tell everybody you are ethical person. You don’t have to tell. After 1 year, 2 years, several years, everybody knows you are an ethical person.
Aoifinn Devitt: I’m Aoifinn Devitt, and welcome to the 50 Faces Podcast, a podcast committed to revealing the richness and diversity of the world of investment by focusing on its people and their stories. I’m joined today by Everaldo Franca, who is CEO at PPS Portfolio Performance, a role he’s held since 1996. He has deep experience with advising pensions and institutional investors in Brazil, and we recently met for lunch during my recent trip to Brazil, uh, in a restaurant in São Paulo. And I wanted to feature him not only as a special guest in our Latin American Voices series, but in our main series too, as I think that his insights around pension fund activity in Brazil will be very interesting for global listeners. So welcome, Everaldo. Thank you for joining me today.
Everaldo Franca: Nice to meet you. Thank you for inviting me for that.
Aoifinn Devitt: Well, before we launch into the world of pensions and institutional investing in Brazil, can you tell us a little bit about your background, where you grew up, what you studied, and how you came to enter the world of investing.
Everaldo Franca: Well, it’s of course a long story because I’m already 67, but I was born in the São Paulo state. I went to São Paulo University for my engineering course. I’m an electrical engineer. After that, I started working as an engineer. I became a father quite early at 23. I’ve got 4 children. Now. And well, I had to work a lot because when I was 25, I’ve got already 2. And after those 2 years in engineering, there came, well, the crisis in Brazil, economic crisis was deepening. There was the terrible crisis of the external debt in Brazil. And the previous, well, it was the military regimen They did some mistakes in managing the economy, and mainly because of the oil shocks of the 1970s, Brazil went into deep problem. Well, at that time, Brazil imported 90% of the total oil consumption. Now it is an exporter, but not at that time. So there was inflation, and inflation was growing. When I graduated, it was around 100% per year. And it got worse and worse until we’ve got in 1994 the Plano Real, which really killed the superinflation with hyperinflation peaks. But until then, we reached some 12,000% per year inflation levels. And so I moved, I had to change jobs. To move from one job to other just to make 25 or 30% more money. And at the same time, inflation was accelerating and it was destroying my purchase power at the same time. So I was running, running without leaving the same place. It was difficult, but I wanted to launch my own company. And in 1987, I got involved with portfolio performance evaluation. So it was the basis for my company. And you imagine, in 1991, I was used to running some presentations and being a speaker in events in Brazil, talking about risk-adjusted performance, and people didn’t pay attention to me. Well, the market was not developed enough to discuss those things. Even the magazines publishing rankings only based on returns. But in 1996, I thought that the market had evolved a little. So I developed the first software in Brazil for portfolio performance evaluation. It was the beginning of PPS. And I’ve got my first client by the end of that year.
Aoifinn Devitt: First of all, what a fascinating trajectory. And interestingly, I was reflecting as you shared, I’ve recorded over 400 podcasts now with industry professionals, and we often speak about entering finance as if it’s a choice, that there are many other choices and that this is a choice that stacked up and we chose it for cerebral reasons. And for— I often think we don’t talk about choosing finance because it pays the bills and because it is a well-earning career, and often life’s necessities require that. I think it’s refreshing to hear that young children and having to work and the urgency behind that, because I think it is something we often don’t talk about. And equally, the burden of pursuing a master’s degree alongside and working alongside household responsibilities, family responsibilities, that’s not a joke either. And I think that being able to reckon that sometimes it is not just about the piece of paper, but about the learning, that that’s learning the material can be the goal in itself. So I want to just thank you and note that how rare it is that we hear that kind of whole picture. Behind a degree and behind a career, not just the motivation. Well, let’s get back now to when you started PPS within a commodities company and they suggested you not leave, but do it within their walls. Can you tell us how that evolved and how it compares to what it is today?
Everaldo Franca: My first client in November ’96, which was my former boss at Banco Bandeirantes. They’ve got a pension fund there. And they wanted my software for performance evaluation. In 1999, we worked for Petros, for example, which is now the second biggest pension fund in Brazil. By chance, I’m an independent member for the investment committee for Petros nowadays. It is very, very hard the beginning, showing your name, to build a name. But now we’ve got some 70 clients. We are considered an important company here, and it’s not an easy environment because we have to compete with big multinationals in the same industry, and there’s local good competitors as well. When I was 28 and I started teaching at university here in Brazil, I wanted to learn how to speak for great publics. And I was so afraid that it was a terror for me, my first class. My hands were shaking. I had to put them inside my pockets so the students couldn’t see I was shaking. After 2 weeks, 1 month, I had the complete dominion over the class. So it was pretty good to learn and to get confidence to speak for publics. It was pretty good, but teaching helps a lot on it.
Aoifinn Devitt: Well, it was actually a mutual friend, Jim Maloney, who’s been a guest on this podcast some time ago, that I think made your acquaintance at a conference international and has been— it was great to put us in touch down there. You mentioned the work you started doing with the public funds. Could you paint a picture for us of the public fund and institutional investor landscape in Brazil? Give us a feel for its size, how it compares to its neighbors as well.
Everaldo Franca: Nowadays, in terms of GDP, percentage of GDP, it is shrinking. It’s been in the past 17%. Now it’s around 12 to 13%. The vast majority of pension funds here, not the biggest ones, but in number, are the private pension funds. Those ones sponsored by private companies, mainly multinationals, even Brazilian ones, but mainly multinationals. They’re small. And there are sometimes management changes and the new CEO comes and say, well, it’s not our business managing a pension fund. Let’s close it. Let’s take this plan and deliver to a bank or to another structure. So the market has been shrinking, but you see Brazil now has 15% per year basic interest rate established by the central bank with an inflation around 4%, 4.5%. So it’s a huge real interest rate now in 2025. So it’s a pretty good year for the pension funds. But there is a problem here. I must send you my last article published here in a local magazine where I’m talking about managing for the medium to long term. And being charged for the short term. It is terrible all around the world, but even in Brazil it’s worse because we are still addicted to short-termism because of hyperinflation. And you see, our basic interest rate is not a prefixed 1-year interest rate. It is an overnight interest rate. It comes from that story. And so everybody charges the pension fund managers, the participants charge them for, oh, they’re always comparing to those overnight interest rates. Whose fault is this? The pension funds, because they must give financial education for the participants so they behave, they are able not to behave this way. But the system is really, really concentrated, of course, in fixed income. But what is the problem? It’s the mismatch between assets and liabilities because the assets are attached to one single working day interest rate and liabilities may be 10, 15 years duration. And so if and when Brazil fixes this present problem with the fiscal policy, we may have more decent interest rates. And then they’re going to look around and say, well, what are we going to buy now? And there will be nothing to buy because everything will be more expensive. So you see, markets are booming this year in Brazil. Our Ibovespa index is up around some 32% today. For the year. Oh, it was a bad year in 2025. Okay, but the previous ones were good. And so we must train the participants and we are investing internationally just a little money. Why? Well, domestic bias is terrible here as well. But after some pretty bad years here from crisis to crisis, they may be learning that international diversification is important. I’ve been preaching for that. Since 2007. It’s been a long time almost begging them, please. I go to some boards to say, well, please, I beg you to invest internationally. And some guys say, no, but investing internationally is too dangerous. Oh, come on, guys. You call your headquarters in the US and tell them, oh, what you’re doing there is wrong. You’re investing in Europe, the US, ‘And Japan, oh, that’s too dangerous. Sell everything and come to Brazil. Put all your money here. You’re going to lose your job. Come on.’ But it’s really a hard task. But one of the roles of the consultants is to educate their clients. So I think that I am paid by my clients even to tell them they are wrong. If they don’t like that, okay, they can fire me. But I feel my obligation to tell them when they’re wrong.
Aoifinn Devitt: It’s very interesting that you say that. And in terms of the international investing, because what I would’ve said and thought was that given the potential weakness of the currency there, the real, that investing abroad in hard currency and well, in dollars and euro would’ve been a nice boost or hedge against a depreciating currency. Because that’s certainly been the case for many UK pension funds. Has that been the case First of.
Everaldo Franca: All, their liabilities in their lives are in local currency, so they see the FX or the US dollar as a different asset, and they see the dollar as something volatile. In fact, what is volatile is our currency, but what they see is the dollar as something which is volatile. And this year The real appreciated 14% face to the dollar. And the short-termism says that, wow, it was a bad movement to have international investments this year. But that’s the way they think.
Aoifinn Devitt: That’s a great clarification. And also just in terms of defined benefit, defined contribution, and maybe who were the other institutional investors in Brazil? If you could just maybe help a little bit with that. As we have had some people from Chile on the podcast describing the Chilean pension landscape. And if it is defined contribution in Brazil, do they invest as broadly as they could?
Everaldo Franca: Well, yes, mainly defined contribution. You see, defined benefit plans, they only invest internationally the excesses, superavits, because what they want to do is to match assets and liabilities. And here we do have those inflation-linked bonds, even for long terms. The longest now, I think it is 2060. I’m not sure we’ve got already 2065, but we are used to running those cash flow matching optimizations for them. But if they have money in excess, they can invest into different things. But defined contribution plans, they are free to invest into different things. They don’t have to run cash flow matching programs, and they do different things, even for example investments into infrastructure and timberland, private equities, and so on. But there’s another problem because many of them built profiles structures so the participant can choose into the conservative or moderate or aggressive profile, which is a problem because they are able to choose and to move among the profiles once a year or twice a year, and they try to trade. And you can imagine, well, when market timing— well, I’ve been studying this subject for 38 years since 1987 running regressions to detect the stock market timing activity in portfolios. I can tell you that I’ve seen in 85% of the cases professional managers lose money when practicing market timing here in Brazil. I’ve got several stories about important managers, big managers inside big conglomerates losing their their clients’ money doing that. But well, you can imagine a non-professional, which is the participant, trying, looking at the rear mirror and trying to move. Oh, now the stocks are up, so I’m going to move to the aggressive. Now it’s down. Oh, I’m losing money. I’m going to be conservative. And so they lose money doing that. And as they move a lot, it is difficult for us to put, let’s say, 5%, 6% and put into a private equity fund. Because when they move money from, let’s say, where should I allocate this investment? To the aggressive? Okay. And when people move from the aggressive to the conservative, 5% could become 30%. And I would be beyond the legal limits, even the investment policies limits. It is a problem. So it’s not easy to manage that. But I’m talking about the closed pensions industry, which are the pension funds. There is another system which is for the municipalities and states, which are public entities. By the way, I’m the chairman of the board for the São Paulo City system. And those structures follow a little bit different legislation, but their governance is, let’s, well, some 20 years late compared to the governments for pension funds in Brazil. So they’re not as developed. And you look, you can see small cities, there is a bank now that went broke in Brazil. Several of them had a lot of money invested into that bank. You can imagine how, but you see. And there is the open pension system, which you can buy at any bank branch, which is even now, it is getting bigger than the pension fund system. So the pension funds is not the only pension structure we’ve got in Brazil.
Aoifinn Devitt: One question that often comes up with institutions here may or may not come up in Brazil is around a focus on sustainable investing, and perhaps we speak about having net zero targets and seeking impact. Do you see any of that from the institutional investors you work with? It’s something that’s very common in Europe, very common in Australia, for example.
Everaldo Franca: Yeah, well, they’re more concerned about returns because even after the pandemic, we’ve got some bad years for the stocks, for example. And when interest rates were put down almost to zero, it was 2%. For Brazil, 2% interest rate is something like magic, but it happened. And when things went back to normal, well, interest rates increased a lot and all the bonds lost value and returns were terrible. Even for the fixed income portfolios. So they need returns, they need to deliver to their clients, which are the participants. They look at returns, but our legislation forces the pension funds to state into their investment policies how will they deal with ESG criteria. And so I’ve got some clients looking at it, but it doesn’t It doesn’t give the way to the investments. It’s only something else to look at. I’m fighting for this kind of investment for obvious motives, but in a country like Brazil where big part of the houses are not connected to the sewage structure and some kids, some children play in very dirty environments. Well, this kind of investment into water and sewage is particularly important both socially and for the environment. And it is growing in Brazil because we’ve got a reform in this specific legislation where in the past only governments were allowed to detain those companies, water and sewage companies, but now it may be a private company. So there’s huge investment into those things here in Brazil now. But in fact, this is not the main concern. ESG is not a main concern in terms of investments for the Brazilian pension funds. It may be for the big shots like Previ. Previ, I’m aware they take a look on that. As well. We’ve been discussing this at Petros, but I haven’t seen many pension funds taking this into consideration when establishing their investment policies and selecting portfolios.
Aoifinn Devitt: Very interesting, especially given Brazil hosted COP this year. I’m sure it’s one that was on headlines and at the top of minds, but I guess there are other priorities when it comes to the investing side. My last question on the investing before we move to some concluding questions on reflections As you look to the next 5 years, are you excited? What excites you about the opportunity set in investing or structural change?
Everaldo Franca: Well, in Brazil, the big opportunity is in the infrastructure side because the governments, all of them, any, realize that they don’t have money to invest into roads and ports anymore. And they’re working on concessions and privatizations, and there’s a boom here, but not enough to put the country to grow what is needed. So there is huge opportunity on that. And in timberland as well, because Brazil has a lot of differential. In North Europe, it takes some 20 to 40 to 50 or more years to grow a tree, to cut it, to produce pulp. Pop, but here it may be 6 to 7 years. And let’s say you make a cut in 7 years, and in 3 years you have a new tree and you make a second cut. So in 10 to 11 years you can make 2 cuts. And so productivity here is, is wonderful. We’ve been investing, my clients under our advice, for 12 years, and we are quite happy with with the returns, with the results, and we are following on that. And even there’s a political question here. We’ve got the presidential elections next year, but it depends on the program for presented by each candidate. Maybe the present incumbent or the opposition, who knows. What is important is how to deal with the fiscal side. ‘Cause Brazil in the ’80s, I was desperate in the ’80s. I said, well, when will this nightmare end with hyperinflation? We’ve got a problem with no international reserves at that time. It lasted till 2002, but now we have big reserves, almost $400 billion, some $370 billion. Anymore, but it was a big problem. And hyperinflation, no problem anymore. And the fiscal— well, hyperinflation was a result of the fiscal problem, okay, but it’s been solved, not completely. So there is a final job, something to be fixed on that. And so if the new government, any government it may be, addresses this problem, we’re going to have a boom in stocks, in the fixed income, with interest rates going down. It will be a wonderful place to invest into. If there’s a government from 2027 on who says, no, the fiscal side is okay, we’re not doing anything to change it, we’ll be in deep trouble. And so the problem will solve by itself because the way to solve the domestic debt is through inflation. So inflation takes the money, money from the population and directs it to the government. So it’s solved by the worst way. And I believe that it happened in the past in Brazil that deep economic problems leads to government changes, or they kill the king, or there is a revolution, or there is a new election, or there is an impeachment. But a deep problem in the economy changes governments. And so it could happen in 2028 or on. I think that Brazil will be a pretty good place to put your money from now on. I believe that.
Aoifinn Devitt: Well, very interesting. Well, we’ll watch this space and I love the optimism. Certainly my time there, I came away feeling full of that optimism and certainly the energy and drive of the population in São Paulo is evidence of that. And I’d love to now move to some closing questions. So you’ve spoken a lot about your career and we’ve already kind of touched on the ups and downs. Was there anything in particular, any setback that you learned a lesson from? Maybe a takeaway that you had from that?
Everaldo Franca: First lesson: one place is different from other. When I lost my, my job as an engineer, I had 5 months before being fired, I applied for another job in a big multinational and I’ve been selected. They were requiring 3 years experience. I’ve got only 1.5, but they liked me. And they made a very good proposal to double my salary. Pretty good. So I asked to quit. And they said, no, no, you’re going to cause a terrible problem for us if you leave. We’re going to double your salary as well. We’re going to give you this and this and that. So it was a familiar company and a family managed it. Company, and I’ve been presented to them by the grandfather of a very good friend. I thought, okay, I owe something to them. They gave me the opportunity, so I gave up the big multinational. Well, the guy who would be my boss knocked at my door on a Sunday. I came here to tell you you are doing a big mistake. I said, okay, I gave my word. I’m gonna stay where I am. And 5 months after, I was fired because there was a crisis and I was an inexperienced professional as well, but I lost my job. After that, some years after, ’94, first time I asked to quit at the commodities company in ’94, they said no because I’ve been invited friend, for a by a friend to join him to launch. He had already launched a consultancy and he’s got two big contracts and called me and said, Everaldo, everything we wanted all the time is here. We’ve got a consultancy. Come here to work with me, to be my partner. So I told the guys, well, I’m leaving because I’m gonna— no, no, no. Allow us to, to call the headquarters to try to build a pack that may be beautiful for you. I said, okay, I’m gonna move, but well, why say no? Okay, that’s fine. And after a week, they presented me such a pack. Well, my house I bought after that with my bonuses. I’m the house where I’m talking to you right now. Well, it was wonderful. If I thought that, well, I went through this before, they promised a lot to me, and after 5 months I was fired. Now, no, no, no, I’m not— no, they were different. It was a different company, more than 100-year company. Well, I trusted them. It was pretty, pretty good doing that. So one place is— one, things are really different, but nobody taught it to me. I learned that by experiencing. Thanks.
Aoifinn Devitt: A good outcome for sure. The second one, it is interesting. Yes, we, we start to think that patterns repeat, but not necessarily, which is the importance of being open-minded. I think very good. This question is around any creed or motto that you have for life. And we talked about your sports and how important it is to keep the, the mind healthy, all about your love of reading. Anything you can leave us with in terms of a takeaway or maybe advice for your younger self?
Everaldo Franca: Everybody says work hard. It’s not only that. You must be lucky. You see, my job at this wonderful company, the commodities company, I was making little money. I was owing money to the bank in 1992. And I called a friend just to say hello because I’m used to talking to my friends. I’ve got lots of friends. Very happy with that. I’m a very lucky person. And I called a friend, was an engineer, and we’ve been colleagues at business administration at night as well. Those guys that did the same as I did in the 1980s, to say hello. And he said, wow, Everaldo, do you remember that guy? Oh yes, our colleague. Yeah, but he moved to Rio. He got married. We went there to the wedding. Party, but he moved to Rio. Yes, he’s back to São Paulo. I never go downtown, never, but I had to go there to solve something. And in the middle of the crowd downtown, I met him. Oh, he’s back. Oh yeah, well, okay, give me his contact. And a week after, I called the guy. He was working as a soybeans trader for this company. And exactly at that time he said, Everaldo, our financial manager left, they’re looking for a new one, give me your curriculum. So he indicated me there and I was hired for my best job ever at that time. And so they even lent me some money to pay the bank, what I owed the bank. So you must be lucky as well, but of course your diplomas, the place where you studied, your university, your way to fight, and there’s another thing they always asked me. I’ve got this characteristic, they always ask you in an interview, how do you behave under pressure? And I never lied about that. Well, under pressure, I work much more. My productivity goes, multiplies by 5 or 10. I enter the alpha state. It helps a lot. And keeping your mind cool in crisis, not be desperate when everybody’s desperate, you keeping your mind clear and not getting desperate makes the whole difference. And another point, you don’t have to tell everybody you are ethical person. You don’t have to tell. After 1 year, 2 years, several years, everybody knows you are an ethical person. It makes a difference in the market. I know several non-ethical people in the Brazilian market. They are in my list of asset managers, the vetoed list, and everybody knows everything. There is nothing wrong you can do that nobody will, will know. Somebody will know one day. So ethics, work, and information. You must read a lot all the time. You must be able to discuss any subject at any time. It is impossible to be a specialist in anything. In China and Korea and in iron ore, okay, but you must have an opinion on Everything. It helps a lot.
Aoifinn Devitt: Well, fantastic words of wisdom there, Everaldo. And I really appreciate the humanity with which you have laced this entire conversation. It is not only the story of a career, it is the story of a life. It is the story of a country that was the backdrop to that life and the backdrop to some of those career choices. But overall, there is a story of giving and giving into the institutional landscape of Brazil and continuing to give and continuing to seek to move the needle. And you are giving us this insight here through this podcast, helping us to learn, helping us to be more informed. So thank you so much for coming here and sharing your insights with us.
Everaldo Franca: My pleasure. Good to see you.
Aoifinn Devitt: I’m Aoifinn Devitt. Thank you for listening to the 50 Faces podcast. If you liked what you heard and would like to tune in to hear from more inspiring investors on their personal journeys, please subscribe on Apple Podcasts or wherever you get your podcasts. This podcast is for informational purposes only and should not be construed as investment advice, and all views are personal and should not be attributed to the organizations and affiliations of the host or any guest.
Everaldo Franca: You don’t have to tell everybody you are ethical person. You don’t have to tell. After 1 year, 2 years, several years, everybody knows you are an ethical person.
Aoifinn Devitt: I’m Aoifinn Devitt, and welcome to the 50 Faces Podcast, a podcast committed to revealing the richness and diversity of the world of investment by focusing on its people and their stories. I’m joined today by Everaldo Franca, who is CEO at PPS Portfolio Performance, a role he’s held since 1996. He has deep experience with advising pensions and institutional investors in Brazil, and we recently met for lunch during my recent trip to Brazil, uh, in a restaurant in São Paulo. And I wanted to feature him not only as a special guest in our Latin American Voices series, but in our main series too, as I think that his insights around pension fund activity in Brazil will be very interesting for global listeners. So welcome, Everaldo. Thank you for joining me today.
Everaldo Franca: Nice to meet you. Thank you for inviting me for that.
Aoifinn Devitt: Well, before we launch into the world of pensions and institutional investing in Brazil, can you tell us a little bit about your background, where you grew up, what you studied, and how you came to enter the world of investing.
Everaldo Franca: Well, it’s of course a long story because I’m already 67, but I was born in the São Paulo state. I went to São Paulo University for my engineering course. I’m an electrical engineer. After that, I started working as an engineer. I became a father quite early at 23. I’ve got 4 children. Now. And well, I had to work a lot because when I was 25, I’ve got already 2. And after those 2 years in engineering, there came, well, the crisis in Brazil, economic crisis was deepening. There was the terrible crisis of the external debt in Brazil. And the previous, well, it was the military regimen They did some mistakes in managing the economy, and mainly because of the oil shocks of the 1970s, Brazil went into deep problem. Well, at that time, Brazil imported 90% of the total oil consumption. Now it is an exporter, but not at that time. So there was inflation, and inflation was growing. When I graduated, it was around 100% per year. And it got worse and worse until we’ve got in 1994 the Plano Real, which really killed the superinflation with hyperinflation peaks. But until then, we reached some 12,000% per year inflation levels. And so I moved, I had to change jobs. To move from one job to other just to make 25 or 30% more money. And at the same time, inflation was accelerating and it was destroying my purchase power at the same time. So I was running, running without leaving the same place. It was difficult, but I wanted to launch my own company. And in 1987, I got involved with portfolio performance evaluation. So it was the basis for my company. And you imagine, in 1991, I was used to running some presentations and being a speaker in events in Brazil, talking about risk-adjusted performance, and people didn’t pay attention to me. Well, the market was not developed enough to discuss those things. Even the magazines publishing rankings only based on returns. But in 1996, I thought that the market had evolved a little. So I developed the first software in Brazil for portfolio performance evaluation. It was the beginning of PPS. And I’ve got my first client by the end of that year.
Aoifinn Devitt: First of all, what a fascinating trajectory. And interestingly, I was reflecting as you shared, I’ve recorded over 400 podcasts now with industry professionals, and we often speak about entering finance as if it’s a choice, that there are many other choices and that this is a choice that stacked up and we chose it for cerebral reasons. And for— I often think we don’t talk about choosing finance because it pays the bills and because it is a well-earning career, and often life’s necessities require that. I think it’s refreshing to hear that young children and having to work and the urgency behind that, because I think it is something we often don’t talk about. And equally, the burden of pursuing a master’s degree alongside and working alongside household responsibilities, family responsibilities, that’s not a joke either. And I think that being able to reckon that sometimes it is not just about the piece of paper, but about the learning, that that’s learning the material can be the goal in itself. So I want to just thank you and note that how rare it is that we hear that kind of whole picture. Behind a degree and behind a career, not just the motivation. Well, let’s get back now to when you started PPS within a commodities company and they suggested you not leave, but do it within their walls. Can you tell us how that evolved and how it compares to what it is today?
Everaldo Franca: My first client in November ’96, which was my former boss at Banco Bandeirantes. They’ve got a pension fund there. And they wanted my software for performance evaluation. In 1999, we worked for Petros, for example, which is now the second biggest pension fund in Brazil. By chance, I’m an independent member for the investment committee for Petros nowadays. It is very, very hard the beginning, showing your name, to build a name. But now we’ve got some 70 clients. We are considered an important company here, and it’s not an easy environment because we have to compete with big multinationals in the same industry, and there’s local good competitors as well. When I was 28 and I started teaching at university here in Brazil, I wanted to learn how to speak for great publics. And I was so afraid that it was a terror for me, my first class. My hands were shaking. I had to put them inside my pockets so the students couldn’t see I was shaking. After 2 weeks, 1 month, I had the complete dominion over the class. So it was pretty good to learn and to get confidence to speak for publics. It was pretty good, but teaching helps a lot on it.
Aoifinn Devitt: Well, it was actually a mutual friend, Jim Maloney, who’s been a guest on this podcast some time ago, that I think made your acquaintance at a conference international and has been— it was great to put us in touch down there. You mentioned the work you started doing with the public funds. Could you paint a picture for us of the public fund and institutional investor landscape in Brazil? Give us a feel for its size, how it compares to its neighbors as well.
Everaldo Franca: Nowadays, in terms of GDP, percentage of GDP, it is shrinking. It’s been in the past 17%. Now it’s around 12 to 13%. The vast majority of pension funds here, not the biggest ones, but in number, are the private pension funds. Those ones sponsored by private companies, mainly multinationals, even Brazilian ones, but mainly multinationals. They’re small. And there are sometimes management changes and the new CEO comes and say, well, it’s not our business managing a pension fund. Let’s close it. Let’s take this plan and deliver to a bank or to another structure. So the market has been shrinking, but you see Brazil now has 15% per year basic interest rate established by the central bank with an inflation around 4%, 4.5%. So it’s a huge real interest rate now in 2025. So it’s a pretty good year for the pension funds. But there is a problem here. I must send you my last article published here in a local magazine where I’m talking about managing for the medium to long term. And being charged for the short term. It is terrible all around the world, but even in Brazil it’s worse because we are still addicted to short-termism because of hyperinflation. And you see, our basic interest rate is not a prefixed 1-year interest rate. It is an overnight interest rate. It comes from that story. And so everybody charges the pension fund managers, the participants charge them for, oh, they’re always comparing to those overnight interest rates. Whose fault is this? The pension funds, because they must give financial education for the participants so they behave, they are able not to behave this way. But the system is really, really concentrated, of course, in fixed income. But what is the problem? It’s the mismatch between assets and liabilities because the assets are attached to one single working day interest rate and liabilities may be 10, 15 years duration. And so if and when Brazil fixes this present problem with the fiscal policy, we may have more decent interest rates. And then they’re going to look around and say, well, what are we going to buy now? And there will be nothing to buy because everything will be more expensive. So you see, markets are booming this year in Brazil. Our Ibovespa index is up around some 32% today. For the year. Oh, it was a bad year in 2025. Okay, but the previous ones were good. And so we must train the participants and we are investing internationally just a little money. Why? Well, domestic bias is terrible here as well. But after some pretty bad years here from crisis to crisis, they may be learning that international diversification is important. I’ve been preaching for that. Since 2007. It’s been a long time almost begging them, please. I go to some boards to say, well, please, I beg you to invest internationally. And some guys say, no, but investing internationally is too dangerous. Oh, come on, guys. You call your headquarters in the US and tell them, oh, what you’re doing there is wrong. You’re investing in Europe, the US, ‘And Japan, oh, that’s too dangerous. Sell everything and come to Brazil. Put all your money here. You’re going to lose your job. Come on.’ But it’s really a hard task. But one of the roles of the consultants is to educate their clients. So I think that I am paid by my clients even to tell them they are wrong. If they don’t like that, okay, they can fire me. But I feel my obligation to tell them when they’re wrong.
Aoifinn Devitt: It’s very interesting that you say that. And in terms of the international investing, because what I would’ve said and thought was that given the potential weakness of the currency there, the real, that investing abroad in hard currency and well, in dollars and euro would’ve been a nice boost or hedge against a depreciating currency. Because that’s certainly been the case for many UK pension funds. Has that been the case First of.
Everaldo Franca: All, their liabilities in their lives are in local currency, so they see the FX or the US dollar as a different asset, and they see the dollar as something volatile. In fact, what is volatile is our currency, but what they see is the dollar as something which is volatile. And this year The real appreciated 14% face to the dollar. And the short-termism says that, wow, it was a bad movement to have international investments this year. But that’s the way they think.
Aoifinn Devitt: That’s a great clarification. And also just in terms of defined benefit, defined contribution, and maybe who were the other institutional investors in Brazil? If you could just maybe help a little bit with that. As we have had some people from Chile on the podcast describing the Chilean pension landscape. And if it is defined contribution in Brazil, do they invest as broadly as they could?
Everaldo Franca: Well, yes, mainly defined contribution. You see, defined benefit plans, they only invest internationally the excesses, superavits, because what they want to do is to match assets and liabilities. And here we do have those inflation-linked bonds, even for long terms. The longest now, I think it is 2060. I’m not sure we’ve got already 2065, but we are used to running those cash flow matching optimizations for them. But if they have money in excess, they can invest into different things. But defined contribution plans, they are free to invest into different things. They don’t have to run cash flow matching programs, and they do different things, even for example investments into infrastructure and timberland, private equities, and so on. But there’s another problem because many of them built profiles structures so the participant can choose into the conservative or moderate or aggressive profile, which is a problem because they are able to choose and to move among the profiles once a year or twice a year, and they try to trade. And you can imagine, well, when market timing— well, I’ve been studying this subject for 38 years since 1987 running regressions to detect the stock market timing activity in portfolios. I can tell you that I’ve seen in 85% of the cases professional managers lose money when practicing market timing here in Brazil. I’ve got several stories about important managers, big managers inside big conglomerates losing their their clients’ money doing that. But well, you can imagine a non-professional, which is the participant, trying, looking at the rear mirror and trying to move. Oh, now the stocks are up, so I’m going to move to the aggressive. Now it’s down. Oh, I’m losing money. I’m going to be conservative. And so they lose money doing that. And as they move a lot, it is difficult for us to put, let’s say, 5%, 6% and put into a private equity fund. Because when they move money from, let’s say, where should I allocate this investment? To the aggressive? Okay. And when people move from the aggressive to the conservative, 5% could become 30%. And I would be beyond the legal limits, even the investment policies limits. It is a problem. So it’s not easy to manage that. But I’m talking about the closed pensions industry, which are the pension funds. There is another system which is for the municipalities and states, which are public entities. By the way, I’m the chairman of the board for the São Paulo City system. And those structures follow a little bit different legislation, but their governance is, let’s, well, some 20 years late compared to the governments for pension funds in Brazil. So they’re not as developed. And you look, you can see small cities, there is a bank now that went broke in Brazil. Several of them had a lot of money invested into that bank. You can imagine how, but you see. And there is the open pension system, which you can buy at any bank branch, which is even now, it is getting bigger than the pension fund system. So the pension funds is not the only pension structure we’ve got in Brazil.
Aoifinn Devitt: One question that often comes up with institutions here may or may not come up in Brazil is around a focus on sustainable investing, and perhaps we speak about having net zero targets and seeking impact. Do you see any of that from the institutional investors you work with? It’s something that’s very common in Europe, very common in Australia, for example.
Everaldo Franca: Yeah, well, they’re more concerned about returns because even after the pandemic, we’ve got some bad years for the stocks, for example. And when interest rates were put down almost to zero, it was 2%. For Brazil, 2% interest rate is something like magic, but it happened. And when things went back to normal, well, interest rates increased a lot and all the bonds lost value and returns were terrible. Even for the fixed income portfolios. So they need returns, they need to deliver to their clients, which are the participants. They look at returns, but our legislation forces the pension funds to state into their investment policies how will they deal with ESG criteria. And so I’ve got some clients looking at it, but it doesn’t It doesn’t give the way to the investments. It’s only something else to look at. I’m fighting for this kind of investment for obvious motives, but in a country like Brazil where big part of the houses are not connected to the sewage structure and some kids, some children play in very dirty environments. Well, this kind of investment into water and sewage is particularly important both socially and for the environment. And it is growing in Brazil because we’ve got a reform in this specific legislation where in the past only governments were allowed to detain those companies, water and sewage companies, but now it may be a private company. So there’s huge investment into those things here in Brazil now. But in fact, this is not the main concern. ESG is not a main concern in terms of investments for the Brazilian pension funds. It may be for the big shots like Previ. Previ, I’m aware they take a look on that. As well. We’ve been discussing this at Petros, but I haven’t seen many pension funds taking this into consideration when establishing their investment policies and selecting portfolios.
Aoifinn Devitt: Very interesting, especially given Brazil hosted COP this year. I’m sure it’s one that was on headlines and at the top of minds, but I guess there are other priorities when it comes to the investing side. My last question on the investing before we move to some concluding questions on reflections As you look to the next 5 years, are you excited? What excites you about the opportunity set in investing or structural change?
Everaldo Franca: Well, in Brazil, the big opportunity is in the infrastructure side because the governments, all of them, any, realize that they don’t have money to invest into roads and ports anymore. And they’re working on concessions and privatizations, and there’s a boom here, but not enough to put the country to grow what is needed. So there is huge opportunity on that. And in timberland as well, because Brazil has a lot of differential. In North Europe, it takes some 20 to 40 to 50 or more years to grow a tree, to cut it, to produce pulp. Pop, but here it may be 6 to 7 years. And let’s say you make a cut in 7 years, and in 3 years you have a new tree and you make a second cut. So in 10 to 11 years you can make 2 cuts. And so productivity here is, is wonderful. We’ve been investing, my clients under our advice, for 12 years, and we are quite happy with with the returns, with the results, and we are following on that. And even there’s a political question here. We’ve got the presidential elections next year, but it depends on the program for presented by each candidate. Maybe the present incumbent or the opposition, who knows. What is important is how to deal with the fiscal side. ‘Cause Brazil in the ’80s, I was desperate in the ’80s. I said, well, when will this nightmare end with hyperinflation? We’ve got a problem with no international reserves at that time. It lasted till 2002, but now we have big reserves, almost $400 billion, some $370 billion. Anymore, but it was a big problem. And hyperinflation, no problem anymore. And the fiscal— well, hyperinflation was a result of the fiscal problem, okay, but it’s been solved, not completely. So there is a final job, something to be fixed on that. And so if the new government, any government it may be, addresses this problem, we’re going to have a boom in stocks, in the fixed income, with interest rates going down. It will be a wonderful place to invest into. If there’s a government from 2027 on who says, no, the fiscal side is okay, we’re not doing anything to change it, we’ll be in deep trouble. And so the problem will solve by itself because the way to solve the domestic debt is through inflation. So inflation takes the money, money from the population and directs it to the government. So it’s solved by the worst way. And I believe that it happened in the past in Brazil that deep economic problems leads to government changes, or they kill the king, or there is a revolution, or there is a new election, or there is an impeachment. But a deep problem in the economy changes governments. And so it could happen in 2028 or on. I think that Brazil will be a pretty good place to put your money from now on. I believe that.
Aoifinn Devitt: Well, very interesting. Well, we’ll watch this space and I love the optimism. Certainly my time there, I came away feeling full of that optimism and certainly the energy and drive of the population in São Paulo is evidence of that. And I’d love to now move to some closing questions. So you’ve spoken a lot about your career and we’ve already kind of touched on the ups and downs. Was there anything in particular, any setback that you learned a lesson from? Maybe a takeaway that you had from that?
Everaldo Franca: First lesson: one place is different from other. When I lost my, my job as an engineer, I had 5 months before being fired, I applied for another job in a big multinational and I’ve been selected. They were requiring 3 years experience. I’ve got only 1.5, but they liked me. And they made a very good proposal to double my salary. Pretty good. So I asked to quit. And they said, no, no, you’re going to cause a terrible problem for us if you leave. We’re going to double your salary as well. We’re going to give you this and this and that. So it was a familiar company and a family managed it. Company, and I’ve been presented to them by the grandfather of a very good friend. I thought, okay, I owe something to them. They gave me the opportunity, so I gave up the big multinational. Well, the guy who would be my boss knocked at my door on a Sunday. I came here to tell you you are doing a big mistake. I said, okay, I gave my word. I’m gonna stay where I am. And 5 months after, I was fired because there was a crisis and I was an inexperienced professional as well, but I lost my job. After that, some years after, ’94, first time I asked to quit at the commodities company in ’94, they said no because I’ve been invited friend, for a by a friend to join him to launch. He had already launched a consultancy and he’s got two big contracts and called me and said, Everaldo, everything we wanted all the time is here. We’ve got a consultancy. Come here to work with me, to be my partner. So I told the guys, well, I’m leaving because I’m gonna— no, no, no. Allow us to, to call the headquarters to try to build a pack that may be beautiful for you. I said, okay, I’m gonna move, but well, why say no? Okay, that’s fine. And after a week, they presented me such a pack. Well, my house I bought after that with my bonuses. I’m the house where I’m talking to you right now. Well, it was wonderful. If I thought that, well, I went through this before, they promised a lot to me, and after 5 months I was fired. Now, no, no, no, I’m not— no, they were different. It was a different company, more than 100-year company. Well, I trusted them. It was pretty, pretty good doing that. So one place is— one, things are really different, but nobody taught it to me. I learned that by experiencing. Thanks.
Aoifinn Devitt: A good outcome for sure. The second one, it is interesting. Yes, we, we start to think that patterns repeat, but not necessarily, which is the importance of being open-minded. I think very good. This question is around any creed or motto that you have for life. And we talked about your sports and how important it is to keep the, the mind healthy, all about your love of reading. Anything you can leave us with in terms of a takeaway or maybe advice for your younger self?
Everaldo Franca: Everybody says work hard. It’s not only that. You must be lucky. You see, my job at this wonderful company, the commodities company, I was making little money. I was owing money to the bank in 1992. And I called a friend just to say hello because I’m used to talking to my friends. I’ve got lots of friends. Very happy with that. I’m a very lucky person. And I called a friend, was an engineer, and we’ve been colleagues at business administration at night as well. Those guys that did the same as I did in the 1980s, to say hello. And he said, wow, Everaldo, do you remember that guy? Oh yes, our colleague. Yeah, but he moved to Rio. He got married. We went there to the wedding. Party, but he moved to Rio. Yes, he’s back to São Paulo. I never go downtown, never, but I had to go there to solve something. And in the middle of the crowd downtown, I met him. Oh, he’s back. Oh yeah, well, okay, give me his contact. And a week after, I called the guy. He was working as a soybeans trader for this company. And exactly at that time he said, Everaldo, our financial manager left, they’re looking for a new one, give me your curriculum. So he indicated me there and I was hired for my best job ever at that time. And so they even lent me some money to pay the bank, what I owed the bank. So you must be lucky as well, but of course your diplomas, the place where you studied, your university, your way to fight, and there’s another thing they always asked me. I’ve got this characteristic, they always ask you in an interview, how do you behave under pressure? And I never lied about that. Well, under pressure, I work much more. My productivity goes, multiplies by 5 or 10. I enter the alpha state. It helps a lot. And keeping your mind cool in crisis, not be desperate when everybody’s desperate, you keeping your mind clear and not getting desperate makes the whole difference. And another point, you don’t have to tell everybody you are ethical person. You don’t have to tell. After 1 year, 2 years, several years, everybody knows you are an ethical person. It makes a difference in the market. I know several non-ethical people in the Brazilian market. They are in my list of asset managers, the vetoed list, and everybody knows everything. There is nothing wrong you can do that nobody will, will know. Somebody will know one day. So ethics, work, and information. You must read a lot all the time. You must be able to discuss any subject at any time. It is impossible to be a specialist in anything. In China and Korea and in iron ore, okay, but you must have an opinion on Everything. It helps a lot.
Aoifinn Devitt: Well, fantastic words of wisdom there, Everaldo. And I really appreciate the humanity with which you have laced this entire conversation. It is not only the story of a career, it is the story of a life. It is the story of a country that was the backdrop to that life and the backdrop to some of those career choices. But overall, there is a story of giving and giving into the institutional landscape of Brazil and continuing to give and continuing to seek to move the needle. And you are giving us this insight here through this podcast, helping us to learn, helping us to be more informed. So thank you so much for coming here and sharing your insights with us.
Everaldo Franca: My pleasure. Good to see you.
Aoifinn Devitt: I’m Aoifinn Devitt. Thank you for listening to the 50 Faces podcast. If you liked what you heard and would like to tune in to hear from more inspiring investors on their personal journeys, please subscribe on Apple Podcasts or wherever you get your podcasts. This podcast is for informational purposes only and should not be construed as investment advice, and all views are personal and should not be attributed to the organizations and affiliations of the host or any guest.
