rentism in Brazil

Jo Spence, The Greatest Product of Capitalism, 1979.


The main private agents of financialization in the country in the XNUMXst century


Financialization is, in many ways, an abstract phenomenon, and its definition is controversial – with multiple ways of conceiving it and different indices for its measurement. Even its existence is sometimes questioned or ignored (mainly by the orthodox economic view). Its complexity also contributes to this picture, since it involves a series of economic (macro and micro), social and political issues, making itself felt in the organization of companies, in the performance of the State, in the conformation of social classes and the world of work, in the behavior of people and institutions – not to mention the effects on relations between countries, regions and blocs, mainly of an imperialist nature. Thus, the impacts of financialization are, on the other hand, quite concrete, although their origin is not always evident.

Among the consequences of the financialization process pointed out by several authors in recent decades, we can mention: the predominance of the financial fraction of the capitalist class; the recurrent eruption of financial crises and the permanent macroeconomic instability of countries, especially on the periphery of the system; the reduction of productive investment rates and financialization of both the activities of non-financial sector companies and social policies; the indebtedness of States and families; the intensification of “productive restructuring” and company mergers/acquisitions, leading to outsourcing, production relocations, mass layoffs and precarious work in the center of capitalism – with similar repercussions on the periphery.

François Chesnais, one of the pioneers in studies on what he called, as early as the 1990s, an accumulation regime with financial dominance or a financialized accumulation regime, highlighted the eminently global character of the phenomenon, using the term “financial globalization” (CHESNAIS, 1998a) in order to characterize the contemporary configuration of capital integration. He also highlighted, also giving greater concreteness to the process, that financial globalization does not hang in the air, but is carried out by the main financial operators. Several other authors – eg. Farnetti (1998) and Sauviat (2005) – showed the prominent role that relatively new financial agents gained from the final decades of the twentieth century. These are institutional investors (fundamentally: investment funds, pension funds and insurance companies), who have come to rival the banks in the centralization of monetary capital by gathering trillions of dollars in their hands. Due to the relatively looser regulation on them, their ascension implied transformations in several areas of capitalism, such as in the banks themselves, in the management of companies and in the savings of workers.

In Brazil, despite some specificities, it was no different. Especially since the country's integration to financial globalization in the 1990s, institutional investors have gained importance. In this sense, it is essential to observe the evolution of these agents in recent decades, in order to measure their relevance and understand their performance. For this purpose, some data referring, above all, to investment funds and supplementary pension funds are analyzed. Before, however, we present a brief history of financial globalization, in order to contextualize the changes that have occurred, and some considerations about banks and the stock exchange, fundamental institutions in capitalism, and for financialization in particular.


Brief history of financial globalization

Chesnais outlines three stages in the consolidation of financial globalization. The first of them (1960-1979) began in the context of Fordism and the Bretton Woods Agreements (1944), when the monetary and financial systems were compartmentalized and there was a situation of managed finance and limited internationalization of capital for financial investment. Then there were signs of the great crisis of overaccumulation of capital in the 1970s,[I] and a significant mass of monetary capital began to form in search of appreciation, mainly derived from the non-reinvested profits of companies. This stock of wealth found refuge in the City of London, where they flocked with greater intensity when Fordism was definitively exhausted and the world economy entered a recession. This situation thus marks the prelude to the constitution of the power of finance: “indirect” financial internationalization (CHESNAIS, 1998b, p. 24) – as the Eurodollar market in the City was the only means of large-scale communication of monetary capital from different countries. In the late 1960s, attacks against the pound sterling and the dollar marked the return of speculative financial activities and the beginning of a reorganization of the financial world. The fixed exchange rate system was put in check in 1971 by the unilateral decision of the US to eliminate the backing of its currency in gold, and definitively buried in 1973, when the flexible exchange rate was actually adopted. Thus, the foreign exchange market was the first element to enter financial globalization.

The “coup d’état” that effectively established the “dictatorship of creditors”[ii] was already evident in the second stage of the process – of financial deregulation and liberalization –, which began with the measures taken by the Ronald Reagan governments (Paul Volcker in the Federal Reserve) and Margaret Thatcher, in the USA and England, respectively (between 1979 and 1981). It was in these two countries, according to Chesnais, that the political and social conditions first met for the assertion of the power of finance. Initially, the aim was to eliminate a double barrier: between the different internal markets (banking and financial specializations), on the one hand, and the controls imposed on the movement of capital abroad, on the other (CHESNAIS, 1996, p. 264). Thus, there was a liberalization of the financial systems of these countries both internally and abroad. There was then a loss of control by countries over part of their economic decisions, the emergence of countless new financial products and the progressive strengthening of institutional investors. Furthermore, it was the turn of the incorporation of public debt securities markets to financial globalization, through its securitization. The significant rise in interest rates in the US in the late 1970s and early 80s completed this process by creating a huge 'snowball' effect on the growth of public debt.

From the 'Big Bang' of the City,[iii] it then entered the third phase (1986-1995) of financial globalization. After the inclusion of the foreign exchange and bond markets – which continued to grow and house more and more transactions – it was the turn of the equity markets to be opened and deregulated around the world. Gradually, dividends became an essential income transfer mechanism, which raised the stock market to the position of “most active pivot” (CHESNAIS, 2005, p. 42) of financial accumulation – while derivatives also multiplied exponentially . Thus, a generalization of arbitrage occurs: capital seeks the best opportunities for appreciation in different markets in different countries, intensifying competition between them and boosting capital flows.

Finally, another element that characterizes and crowns the third stage of financial globalization is the incorporation of markets from countries outside the center throughout the 1990s. of the USA and the IMF, to be inserted in the financial globalization. This is precisely what happens in Brazil under the neoliberal governments of the time, which promoted a rapid commercial and financial opening, privatizations and administrative reforms aimed at “drying” the State, aiming to release resources that, in reality, were largely channeled to paying interest on the public debt. It is in this context, therefore, that institutional investors flourish in the country.


Stock exchange

Although the objective of this text is to analyze the relatively new agents of financialization (in the sense that they emerged more recently or because their role in the functioning of capitalism only gained relevance a few decades ago), it is first necessary to review two types of unavoidable institutions: stock exchange and banks. It should be noted that financialization is not to be confused with them – as they are much older (they emerged centuries ago) –, but it is associated with a situation in which fictitious capital, credit and financial activities in general acquire specific volume and importance in society. economy and society as a whole.

In addition, the development of financialization also led to the creation or impulse of “brand new” agents (or types of existing ones), which, however, will not be discussed here: investment banks, for example, have become key players in massive processes of mergers and acquisitions of companies in the last decades. Sovereign funds, belonging to states, multiplied in the 2000s and began to manage trillions of dollars, as well as equity investment funds (equity funds). private equity). There are still less quantitatively expressive modalities, but revealing the current directions taken by the forms of financing: endowment funds, for example, have been increasingly used to support certain activities or institutions (especially cultural ones), such as museums, universities and foundations.

Starting with the stock exchanges, these are fundamental institutions, as they house a huge volume of financial transactions, more easily connect investors from different parts of the world (increasing capital mobility), provide security, agility and standardization to operations and assist in the “pricing” of assets. In Brazil, there is currently only one major stock exchange actually in operation,[iv] “B3 SA – Brasil, Bolsa, Balcão”, located in São Paulo and having acquired this name only in 2017, when it underwent its most recent merger (with CETIP).[v]At that time, it became the fifth largest exchange in the world by market value, worth around US$13 billion (ALVES, 2017), although in terms of market capitalization of traded assets it was well below. Currently, including due to the recent devaluation of the real against the dollar, its market capitalization is less than US$ 1 trillion, placing it in the 18th position in the world, although first in Latin America.

From the year 2000 onwards, when the remaining nine exchanges in Brazil were merged into what was then the São Paulo Stock Exchange, a rapid movement of operational and institutional transformations began, as well as the centralization of activities in São Paulo. This process was not by chance, but crowned the rise of the city of São Paulo to the undisputed financial center of Brazil. In the same period, the derivatives market also underwent strong expansion and consolidated itself as one of B3's essential segments. Indeed, the financial deregulation implemented at the global level generated great macroeconomic instability in countries, leading companies to increasingly resort to financial derivatives as a way to protect their operations (and, consequently, also to speculate).

As previously mentioned, there was an increase in the participation of institutional investors in the stock exchange[vi] (see Graphs 1 and 2): in the volume of the spot market, it was 15,8% in 2000, reaching 34,3% in 2010. After a slight drop between 2013 and 2017, the share rose again, reaching a peak of 35% in 2019. In the volume of derivatives, the share rises from 24,5% in 2004 (oldest data available) to 33,6% in 2010, with a peak of 37% in 2012. After a few years of decline , returns to the level of 2012 in 2018.

graphic 1


 graphic 2


It is also worth noting the growing “denationalization” of asset ownership. The participation of “foreigners” in the financial volume of the stock market increased and surpassed that of institutional investors from 2011, jumping from 22% in 2000 to 33% in 2010. The peak occurred in 2014 (53,7%). when it then starts to retreat in the wake of the Brazilian crisis (see Graph 1). By way of comparison, the evolution in the 2000s was more expressive than in the other BRICs (PARK, 2012, fig. 6). Brazil's achievement of “investment grade” in April 2008 contributed decisively to this performance, as it encouraged – and in some cases allowed – the arrival of foreign investors (especially institutional ones). The stock exchange broke its record of points in the following month (May), which until today has not been surpassed (both in values ​​adjusted for inflation and in dollars), even after the recovery from 2016 to 2020 (see Graph 3). In the derivatives market, the increase in the participation of “non-residents” was even more significant.

In line with the growing monopolization of world capitalism (driven in the country by the opening of the 1990s), the number of companies listed on the stock exchange gradually dropped between 1995 and 2006, from 550 to 350. In August and September 2019, the number of companies reaches a historic low (326) and, as of July 2020, starts a surprising rise amid the crisis caused by the pandemic, reaching 363 listed companies in March 2021.[vii]

According to B3 (2018b, 2018c), in February 2018 eight companies accounted for half of the total market capitalization and less than 70 made up the Ibovespa,[viii] with more than half of this consisting of the quotation of only five companies. Furthermore, it should be noted that approximately 35% of the total composition of the index corresponded to “financial services and financial intermediaries” companies and that among the eight with the highest market capitalization on the stock exchange, five were banks (more than 25% of the total).

graphic 3

In summary, there was a growing concentration of the Brazilian stock exchange, as well as the expansion of foreign participation and institutional investors in it. It is also verified the weight that the banking sector has in the stock market and some implications of this: if, according to the widely spread discourse, the stock exchange should mobilize resources to encourage the production of companies and, consequently, economic development, it is seen that a significant part of this amount is channeled to feed the financial institutions themselves and their intermediation activities (strictly “unproductive”[ix]). Even if this were not the case, it should be noted that the secondary stock market does not directly finance companies. Only primary issues (IPO and Follow On) do, and in Brazil they are small in relation to the total volume on the exchange.[X] The secondary market is responsible for ensuring the necessary liquidity for securities and “pricing” them. In addition, in a financialized environment, the high proportion of dividend payments and share repurchase transactions[xi] may cause the flow of funding to even be reversed (LORDON, 2010).



Banks play a key role in relation to credit – a key element of capitalism. Harvey defines the credit system as a “kind of central nervous system for coordinating the divergent activities of individual capitalists”, stressing that it needs people and institutions to make it work. Thus, bankers, financiers, stock traders, etc. would form, to some degree, a “special class within the bourgeoisie (…) [that] occupies what seems to be the top command of the economy” (HARVEY, 2006, p. 270–272, our translation), mainly in the regime financialized, it should be added. The credit system gives monetary capital the power to coordinate and optimize accumulation, insofar as it comes to represent the common capital of the capitalist class, whose 'will' can be imposed on individual capitalists, controlling/managing, to the extent possible, the contradictions between individual and class capitalist interests.

The analysis of the banking sector, however, is complex and deserves a separate in-depth study, such as Camargo's (2009). Although banks are not at the center of the reflection intended here, some points must be addressed due to the enormous weight they have in the economic and social life of Brazil, among other reasons, due to their high degree of concentration. The five largest (two of which are public), centralize resources whose amount exceeded the Brazilian GDP in 2019 (more than R$ 7,3 trillion) (BRONZATI, 2020), in addition to holding about 70% of the total assets of the entire national financial system and more than 80% of the banking segment (BANCO CENTRAL DO BRASIL, 2018, p. 144). The 2008 global crisis contributed to this scenario, as it stimulated mergers and acquisitions in the sector in subsequent years: there were 18 between 2008 and 2019.

An important change in the performance of banks, however, took place in the 1990s, when there was both a round of banking concentration in the wake of privatizations and the end of extremely high inflation and the beginning of the government's policy of high interest rates. After the Real Plan, the high inflationary gains of the 1980s gave way to profits from the public debt: the Selic rate remained above 20% until almost the end of the decade (reaching an annualized rate of 85% for some days of 1995). In the 2000s, interest rates dropped considerably and became more stable, but remained at double digits. Only in the 2010s did the Selic remain below 10% in a sustained manner, also reducing the level of its real rate.

Banks also have other important sources of profit. Although conservatism[xii] of the sector (which accommodated itself with the gains arising from the public debt) has historically kept low the credit granting rates, the spreads in Brazil are very high.[xiii] Service fees are also high.[xiv] and became the subject of incessant customer complaints, which led both to increased regulation by the Central Bank and to the recent movement to encourage virtual banks and other fintechs.

Finally, it should be noted that the main banks in Brazil are multiple, operating in other important segments in the financialization process, such as insurance, pension plans and investment funds. The insurance market grew exponentially throughout the 100st century, exceeding BRL 2016 billion in technical provisions in 142,5 and reaching BRL 2020 billion in 2021 (SUSEP, 6, p. XNUMX).[xv] In the first positions are institutions belonging to national banks. Bradesco had revenues of R$32,7 billion in 2016 (1st position) in this line of activities, excluding VGBL[xvi]; and Banco do Brasil, R$ 15,3 billion (3rd position). Considering only the VGBL segment, the four first placed belonged to national banks.

As for investment funds, banks dominate distribution to retail investors – using funds in quotas to segment their clientele. This is a characteristic of 'emerging markets' in general, and is particularly striking in Brazil, as banks are also the main administrators and fund managers (VARGA; WENGERT, 2011, p. 92–94) through subsidiary companies: according to data from ANBIMA (2021b, 2021c), they correspond to 9 of the 10 largest administrators and 8 of the 10 largest managers (disregarding XP, which recently became a bank) and, according to a 2015 study (GILES et al., 2015, p 14 and 64), controlled 85% of the assets under custody.

In the case of open private pension entities, the five largest companies in the field belong to banks or are associated with them (FENAPREVI, 2019). As for pension funds (closed private pension entities), since they are linked to the institutions of their shareholders, they are not directly associated with banks. However, as will be seen below, both pension funds and insurance companies “outsource” a good part of the management of their resources through investment in investment funds, which, as seen, are largely administered and managed by banks. In addition, two of the largest pension funds in the country, Previ and Funcef, are owned by bank employees (Banco do Brasil and Caixa, respectively), so that the sponsor (the bank) has a seat on the management board.

In summary, unlike other countries (where there is greater diversification of agents), in Brazil banks have ample influence even over the other institutions through which financialization advances. Thus, if the mere existence of banks does not imply financialization, they nevertheless play a central role in financialization in Brazil. The following analysis completes the picture.


The new agents of financialization

The emergence of financialization worldwide is closely linked to the rise of new institutions that centralize money capital. Although pension funds, investment funds and insurance companies had already existed for decades, their quantity and the volume of resources managed by them increased significantly from the 1980s onwards. This process was accompanied by their concentration: currently, the 500 largest funds manage 25% of the world's financial assets, equivalent to about 100% of global GDP (CHESNAIS, 2016, p. 251). This gave these agents particular characteristics and a prominent role in the economic and social world. In addition to the crisis of overaccumulation of capital that broke out in the 1970s – which increased the share of capital held in the form of money and invested financially – the need to form private savings (from families and companies) for the retirement of workers contributed to explain this movement.

In Anglo-Saxon countries, where public pension systems have been less developed, pension funds have been pioneers and have driven financialization since the 1960s and 70s – completing, in this period, a first phase of accumulation of resources and bringing millions of people closer to the future. financial market. Nevertheless, in the 1980s, they underwent an “explosive progression” (FARNETTI, 1998, p. 187–8). The high interest rates with low inflation and the good moment of the stock exchange inflated the accumulated amounts, while the deregulation and liberalization of the capital markets multiplied the investment opportunities.

In the early 1990s, pension funds experienced a new impulse and directed a larger, albeit proportionally small, part of their investments to “emerging markets”, in search of diversification. According to estimates (FARNETTI, 1998, p. 197), between 1992 and 2000, amounts would have gone from US$ 12 billion (0,2% of total assets) to US$ 353 billion (2,9%), with Asia and Latin America would correspond to 95% of flows.

These data reveal the close link between the strengthening of these institutional investors and the development of financial globalization (intense in the 80s and incorporating peripheral countries in the 90s, as shown by Chesnais). This is also clear in the way in which Anglo-Saxon pension funds used their resources: not granting loans in the classic bank model, but preferring to acquire shares in companies in order to impose profitability targets. Alternatively, they promote financing through the securitization of debts, which allows both the unfolding of the use of the security (which can be used as a means of payment in a secondary market) and favors speculation (that is, it expands the possibilities of gain with the change in the price of the security).

As for investment funds and insurance companies, there was also an important increase, albeit to varying degrees according to the countries. According to data from Farnetti (1998, p. 189–190), in the USA, for example, the assets of insurance companies increased from US$ 182,1 billion in 1980 to US$ 640,8 billion in 1993. mutual funds (investment funds) in the United States, in addition to being pioneers, underwent an evolution that placed them in a position far ahead of those of other countries: in 1995, the 5.655 funds had under their control US$ 2,6 trillion (the equivalent of approximately French and British GDP at the time combined), whereas in 1980 they numbered just 564 and controlled $134 billion. According to Sauviat (2005, p. 109), in 2001 their assets represented 56% of the OECD total (for pension funds the proportion was even higher: 66%).

Throughout the 2000s, the assets managed by investment funds worldwide continued to increase, including those of hedge funds[xvii]. Between 2001 and 2007, it went from US$ 12 trillion to US$ 26 trillion. On the eve of the 2008 crisis, only 66 groups managed “75% of the planetary speculative transactions, which amounted to around 2,1 trillion dollars a day” (DOWBOR, 2009). In 2008, there was a major setback in the crisis (US$ 7 trillion), but growth resumed as of 2009 and the stock of assets reached US$ 31 trillion in 2014 (158% increase compared to 2001) . It should be noted that, in 2013, approximately 50% of this volume belonged to US funds and 43% to funds from other high-income countries, although middle-income countries increased their participation over the course of the decade: Brazil accounted for 3% of total, percentage equivalent to that of Japan and Canada and higher than that of China (2%) (GILES et al., 2015).

Given this scenario and the more aggressive profile assumed by these financial agents – who play the “dual role of 'owner' and creditor” (SAUVIAT, 2005, p. 110) –, some important consequences can be recalled. Due to the rentier nature of its activities,[xviii] Institutional investors put pressure on the productive sphere and pass on burdens and losses onwards – above all to workers, but also to fund quota holders, for example. As Sauviat (2005) points out, the imposition of high profitability standards led to negative impacts on company employees, such as: labor market segmentation (enrichment of a small portion of “high potential”), increasing inequalities;[xx] degradation and intensification of working conditions; increase in accidents and illnesses; creation of “shareholder value” and linking compensation to company performance to the detriment of salary; outsourcing and relocations that reduce employment and increase the industrial reserve army, among others.

As for quota holders, they suffer consequences for not having their destiny linked to that of managers. Although they are interested in increasing profitability, since they are remunerated by fees both on invested equity and performance on yield, this is normally done at the price of increased risk, both due to competition between funds and the fact that they working with borrowed capital: managers do not lose directly from failure, as there is no reimbursement for 'dis-performance', as many quota holders dramatically observed in the 2008 crisis.[xx]


Investment Funds in Brazil

A brief history is enough to show that, following the financialization trend, the investment fund industry has gained unprecedented importance in Brazil in recent decades. The first fund was created in 1957 and until the 1970s there were only 11. Even with the creation of the category of “fixed income funds” in 1984, the evolution in the 1980s was still relatively weak. The big tree, both in quantity and in managed resources (in relative and absolute terms), began only in the 1990s, especially in the second half. In 1995, the total equity of the funds corresponded to 8,77% of GDP; in 1998, at 14,66%; and, in 2000, to 24,78%. This evolution is largely related to the stabilization of the economy and the control of inflation, as shown by Varga and Wengert,[xxx] but also with Brazil's entry into financial globalization in general.

A more significant progression, however, was announced in the 29st century, with the search for greater gains and an expansion of resource management outsourcing: an important part of what was injected into investment funds came from the redirection of investment in stocks and in traditional modalities , like savings. There was a significant transfer from the direct allocation in equities to equity funds, while the savings balance fell to only 2010% of the balance of fixed income funds in 1995, whereas they were very close to each other in 2011 (VARGA; WENGERT, 76, p. XNUMX).

A publication by the World Bank reveals the position that Brazil had reached at the end of 2013: “Brazil had the fifth largest domestic fund market in world terms and the largest mutual fund industry in the developing world, with more than of US$ 1 trillion in assets under management and an unusually large amount of funds, totaling just over 8.000” (GILES et al., 2015, p. 9). This is due, of course, to the size of the Brazilian economy, but not entirely. Just note that funds from countries whose economies are considerably larger, such as China and Japan, managed $479 billion and $774 billion in assets at the same time, respectively.

Thus, despite the evolution in Brazil having accompanied the world movement in the 2000s (ascending, with a decline only in 2008 due to the crisis), it was more accelerated, as attested by Varga and Wengert (2011, p. 77) and as suggested by the Graph 4. It also shows that it continued in the 2010s, being equally expressive as a proportion of GDP (Graph 5): total equity rose from approximately 24% at the end of 2002 (R$ 1.316 billion constant[xxiii]; 2.909 funds),[xxiii] to 43% in 2010 (BRL 3.697 billion constant; 5.679 funds),[xxv] reaching a record 81,4% of GDP (R$ 6.453 billion; 13.002 funds) in 2020. And, like the banking sector, the investment fund sector is highly concentrated: at the beginning of 2021, the ten largest managers (each one with more than BRL 100 billion in custody and almost all linked to banks) accounted for 63,5% of the funds' total equity (ANBIMA, 2021b).

 graphic 4

There are, however, important differences in relation to central countries. First, a high proportion of resources are allocated to operations with public debt securities, to the detriment of shares and private securities, whose weight is greater in the US, UK and Japan, for example (PLANTIER, 2014, fig. 3): in From 2002 to 2020, according to ANBIMA data (2021a, p. 7), only between 2007 and 2013 the allocation of investment funds was less than 60% (albeit slightly), having reached more than 70% between 2002 and 2004 and from 2016 (except in 2019). Furthermore, the weight of funds in each sector is different. According to Varga and Wengert (2011, p. 78), the assets of US investment funds, for example, accounted for 28% of the capital of publicly traded companies and for 12% of US federal government bonds in 2009. In the same year, funds held 53% of public securities (including committed operations), 17% of debentures and 8% of shares.

graphic 5

In the same sense, investment fund allocations in an important corporate financing instrument, debentures, did not reach 5% in any year of the 2002-2020 period. Allocations in financial bills and CDBs/RDBs (securities issued by financial institutions) ranged from 5,8% to 15% of the total, remaining at levels similar to those of shares in most of the series. These, in turn, fluctuated between 10% and 11% of the total until 2005, despite the rise in the stock market as of 2003. From then on, the percentage increased and reached a series record in 2007 (21,7% ), before declining to 14,5% in 2008 due to the global crisis. After reaching 8,5% in 2015 and 2016, it rises again, but reaching only 15% at the end of 2020, that is, a level similar to that of the 2008 crisis (see Graph 6).

graphic 6

It is therefore concluded that speeches defending the importance of funds for financing the country's development are ideological, since “direct” financing of non-financial companies (eg debentures) is very modest. That of financial institutions (financial bills and CDBs/RDBs) is more than twice as high and the allocation to shares averaged 13,2% in the period, a low level (not to mention the issue related to the effective weight of corporate financing via shares, discussed at the end of the section on stock exchanges). The high percentage in government bonds, in turn, does not translate into a direct contribution to growth, as the public debt represents more of a mechanism for producing income and a “burden” than a means of leveraging new investments. of the State (we will come back to this in the final considerations).

As for the relationship between other institutional investors (pension funds, insurance companies) and investment funds, it should also be noted that, in 2012, 89% of investment fund assets [mutual funds] Americans belonged to individual investors, while institutional investors therefore held only 11% (ICI, 2013, p. 90 and 105). In Brazil, in the same year, only 18% of the funds' equity was in the hands of retail investors[xxiv] (just as only a negligible percentage of the public debt is also directly in the hands of this type of investor, via the Direct Treasury). The share of this segment actually dropped over the years, from over 30% of net worth in 2005 to 17% in 2011, while institutional investors maintained their share of almost 40% (see Graph 7). At the beginning of 2021, retail participation had fallen even further, to 11%, while institutional investors maintained the same level (38,2%). The “Corporate” segment, which had remained around 15% from 2005 to 2011, dropped to 10,7%, and “Private” slightly increased its share.

 graphic 7

In addition to the significant increase in the volume of monetary capital in the hands of investment funds, the data reveal, therefore, that since the first decade of the 80st century, funds have come to house a large part of the wealth held by institutional investors. The three largest insurance companies in the country, for example, had at least 1990% of their assets invested via investment funds. This scenario was largely due to the aforementioned international and domestic situation since the XNUMXs, as well as the consequences of reforms (eg Social Security) and other measures adopted by successive governments since then.


Pension Funds in Brazil

As previously mentioned, pension funds – legally designated as “Closed Supplementary Pension Entities” (EFPCs) – are another type of financial agent that gains prominence with the development of financialization. To the extent that they centralize and manage the savings of dispersed individuals in order to provide them with a return, these entities are similar to investment funds. However, a number of factors give them specificity, so that it is justifiable to treat them separately, including in relation to open pension funds – the “Entidades Abertas de Previdência Complementar” (EAPCs). These, in fact, differ little from investment funds, with their social security purpose often mischaracterized (DE CONTI, 2016a, p. 11) – and, in practice, the resources of the PGBL and VGBL plans (practically the total of the sector) are allocated in investment funds to be managed.

Firstly, the 'clientele' of the EFPCs is restricted – to the workers of a given company or trade union/professional association[xxv] – and participants and beneficiaries normally have representation on the deliberative board. Thus, there is usually a close relationship between unions and the management of these entities, in addition to the sponsoring company itself. In the three largest EFPCs in Brazil (Previ, Petros and Funcef, linked to Banco do Brasil, Petrobras and Caixa, respectively), responsible for around 40% of the resources currently held by the sector as a whole, half of the seats are elected by the participants and assisted , usually between candidates linked to trade unionism. Furthermore, since the sponsoring company usually also makes contributions, another characteristic of EFPCs is that the centralized volume of resources far exceeds the participants' saving capacity (as a rule, the sponsoring company contributes in the same proportion as the worker).

Like investment funds, Brazilian EFPCs experienced a large accumulation of resources in the 1990s, due to commercial and financial opening and the advance of financialization resulting from it. This translated into a strong increase in the proportion of their investments in relation to GDP – making them important institutional investors, as shown by ABRAPP data:[xxviii] from 3,3% of GDP in 1990 to 9,2% in 1996, reaching 13,6% in 2000.[xxviii] The privatizations that took place in the period represented a broad process of interconnection between the large national economic groups – already consolidated or in the process of consolidation – and the EFPCs. As Rocha (2013, p. 52) shows, these and public funds played an important role in the restructuring of large economic groups, with the intermediation of the financial market: “The continuation of this process of association between blocks of capital within the stock market resulted in in the growing interweaving of national economic groups, state-owned companies and union pension funds, that is, the amalgamation of big capital in Brazil through the Stock Exchange”. In many cases, these social security entities even became controllers or important shareholders of the groups, as in the case of BRFoods, CPFL and Vale.

If, in the Fernando Henrique Cardoso government, the EFPCs were mainly driven to take part in the privatization processes, since the Lula government, investments in large national groups and in infrastructure have increased, as shown by the analyzes by De Conti (2016b). The connection promoted in the 2000s between BNDES, state-owned companies, trade union centrals and large private capital meant that that period was, contrary to what was expected, the one with the greatest growth for large economic groups.

Likewise, despite significant growth in the 1990s, the ratio of EFPC investments to GDP continued to rise during the 2000s, reaching a peak of 16% in 2007 (pre-world crisis). Although the decade ended at 13,9%, the absolute amount of investments reached a level well above that of the previous decade, since GDP had accumulated real growth of almost 40% between 2000 and 2008.[xxix] At constant values,[xxx] we have: R$ 492 billion in 1996, R$ 685 billion in 2003 and R$ 1.122 billion in 2010 (that is, more than doubling in these 14 years). This increase in resources was accompanied by the continued concentration of the sector in the period: the eight largest EFPCs accounted for 60,2% of investments in 2002 and 59,1% in 2010; and the three largest together (Previ, Petros and Funcef), accounted for 43,3% and 46,8% of investments in each year, respectively.

Despite the PT governments' stimulus to pension funds and the strong growth in investments between 2002 and 2007, the number of entities remained relatively stable between 2002 and 2010 (reaching a peak of 372 in 2007). From 2010, the number drops uninterruptedly and ends 2020 at 291, while the amount of investments remains stagnant, contrary to – and perhaps to the benefit of – open entities, which continued in a continuous movement of increasing resources. In constant values, EFPC investments in 2019 were at the same level as in 2012. That same year, EAPCs exceeded EFPCs for the first time: R$ 1.178 billion[xxxii]and R$1.169 billion respectively. In addition, the concentration of EFPCs decreased: in 2020, the participation of the 3 largest was 39,2% of the total and the 8 largest, 53,2%. Interestingly, the number of active participants continued to increase at the same pace as the previous decade (reaching around 2,7 million), which shows that the slowdown in investment growth was not due to a loss of contributors, but, among other possible factors , to fluctuations in the economic scenario (since, with the pandemic crisis, investments fell sharply in 2020, for example).

Another phenomenon related to Brazilian EFPCs was the intensification of investment management outsourcing. It began in the second half of the 1990s, when the average proportion of investment in funds in relation to the total portfolio increased from 19,4% in 1996 to 48,1% in 2000. In 2010, it was already at 54,3 % and jumped to 66,4% in 2019. It should be noted that, if many entities resort to funds for their “expertise”, at least in the case of the three largest EFPCs, this seems to be more a way of circumventing certain regulations, obtaining tax advantages and facilitating investments than actually a delegation of decisions.[xxxi] In any case, considering the general situation of the EFPCs and such a degree of outsourcing of management, one can see the influence of investment fund managers (basically banks, as previously mentioned) on a good part of the resources held by the EFPCs (about R $630 billion of the total BRL 950 billion in 2019, for example). Not to mention their earnings from fees (administration, custody, performance, etc.), which are difficult to estimate due to their variability.

With regard to investment strategies, the social security purpose of the EFPCs at first places security, actuarial balance and the long term as the basis for decisions, which, combined with the high interest rates practiced in the Brazilian economy and the tendency towards the extinction of benefit plans defined,[xxxii] make their profile quite conservative.[xxxv] Direct ownership of public debt securities by EFPCs – which already had considerable weight, in line with trends in the Brazilian financial market – increased by four percentage points between 2002 and 2010, from 13,3% to 17,1% of the entity set portfolio. This level was maintained in the second half of the 2010s, reaching 18% in 2018 and ending 2019 at 16,6%. Nevertheless, the weight of government bonds is certainly much greater, due to the outsourcing of management via investment funds, which, as previously discussed, also invest significantly in government bonds. In 2010, the investment of EFPCs only in fixed income funds was 38,2% of the portfolio (out of a total of 54,5%, when multimarket and real estate funds are included), while in 2019 it had risen to 54,3 % (out of a total of 66,4%).

graphic 8

graphic 9

In order to accurately determine how much of these resources allocated via investment funds are in public debt securities, however, it would be necessary to analyze them on a case-by-case basis, as almost all classes of funds have this type of investment to a greater or lesser extent. Just to give an idea of ​​the dimension of the issue, in 2011 (oldest data available from ANBIMA), the resources of the set of EFPCs invested in investment funds were distributed as follows: 44,5% in fixed income funds (high participation of public titles),[xxxiv] 24,5% in stock funds, 22,4% in multimarket funds and 8,6% in funds of other classes. In the same year, 57,4% of the total resources in Brazilian investment funds were allocated in federal public debt securities. At the beginning of 2021, the picture had become more pronounced, as the distribution was 57,1% in fixed income, 29% in multimarket and 12,6% in shares; and that the proportion of investment fund resources allocated to federal public debt securities rose to 70,3% (ANBIMA, 2012, 2021a).

In short, capitalization retirement consists of a private saving of resources invested in the financial market – with some modulations and under regulatory constraints, especially in the case of closed entities –, in order to obtain the best possible profitability. Most of the portfolio of the entities as a whole is in fixed income, mainly public debt securities. Consequently, this modality is fundamentally based on individual savings capacity, on rent (especially on the public budget) and on financial valuation (proper functioning of financial markets). In addition, it produces an important contradiction in a portion of the working class and, above all, in the trade union elite (especially those linked to the government), insofar as the disputes for the administration of resources promoted substantial transformations in their political positions.[xxxiv] Finally, the private capitalization model, even though it is (still) only “complementary”, to some extent competes with the public pay-as-you-go system – whose proper functioning depends on very different factors, such as economic growth, formal employment and intergenerational solidarity.[xxxviii] Given the controversy over the magnitude, and even the existence (GENTIL, 2006), of the social security deficit, the reforms approved in 1998 and 2003 had as their objective, and as a direct consequence, to stimulate the complementary system and produce a surplus in public accounts (to the payment of interest on the debt, from which supplementary pension funds are also supported).


Final considerations

Brazil definitely entered financial globalization throughout the 1990s, starting with the neoliberal reforms. Since then, some phenomena typical of global financialization have developed in the country. Some of them, related to private financial agents, were reviewed.

The stock exchange was concentrated – both in terms of bringing operations together in a single institution and in the number of listed companies – and more than quadrupled in points between 2002 and 2008 (in real values), consolidating itself as the largest in the world. Latin America. The participation of foreigners, as expected, also increased, as did that of institutional investors. The low number of primary issues and new issues, share repurchase operations and the prominent place of financial institutions among the largest companies on the stock exchange reinforce the question of what is the real contribution of stock exchanges to productive financing and the development of the country in the current context.

Institutional investors, in turn, not only increased in number and remained highly concentrated, but also greatly expanded the volume of funds under management. They became key players in the Brazilian financial system, with growing shareholdings in companies. In view of the high outsourcing of management by insurance companies and pension funds and the importance assumed by open pension funds, investment funds stand out among institutional investors.

On the other hand, there are some specificities of the Brazilian case in relation to financialization in the center, especially in the USA. Although competition from institutional investors and so-called “fintechs” has increased in recent years, it does not (yet) really threaten the situation of banks. These suffered successive rounds of concentration and control a good part of the insurance, pension and investment fund sectors – remaining the central agents of finance in the country.

Another salient feature of financialization in Brazil (and in other peripheral countries) is the expressive allocation in public debt securities, mainly due to an interest rate kept high since the Real Plan – as part of an orthodox economic policy.[xxxviii] In the case of investment funds, it was seen that investment in this type of asset currently revolves around 70% of net worth, so that, at the end of 2020, they held 26% of public debt, financial institutions almost 30 % and pension funds 22,6% (almost 80% of the total, therefore). Adding the part of the government itself (3,8%), the almost 4% of insurance companies and 9% of “non-residents”, we have practically the total debt (TESOURO NACIONAL, 2021). The weight of foreigners, however, is largely underestimated in “non-residents”, since those included in other headings are not included there. This picture, combined with the fact that the dealers[xxxix] being basically composed of a small group of banks (also national and foreign), reveals that the banking sector is by far the great controller of the Brazilian internal public debt and that the weight of foreigners is considerable.

Rents on the public budget is one of the pillars of financialization in general, but it has, therefore, a particular importance in Brazil. Due to limitations of space and scope of this work, it was not possible to deal in depth with the issue of public debt, which is reproduced in a “snowball”. By way of example, comparing Lula's two terms, despite the internal economic growth ("miracle" from 2006 to 2010), the reduction in interest rates and the larger primary surplus in Lula II (2007-2010), the Debt in real values ​​increased faster in this than in Lula I (2003-2006). And, although the debt decreased in real terms in the first years of Dilma Rousseff (2011 to 2013), it rose again in 2014 and, in 2016, was already much higher than in 2010. A crucial factor of the Brazilian public debt is that it it is expensive (FEBRUARY, 2017) and compromises a significant part of the public budget: about 40% of the total currently (BRL 1,38 trillion, 2020 data), including interest, charges and amortizations,[xl] according to the Citizens' Debt Audit (2021).

In addition to the “unproductive” character[xi] of the Brazilian public debt, the trap it represents is therefore evident – ​​especially in a context of financialization. Its amount grows continuously despite the efforts of the government and there is a high concentration of holders. Instead of being a means of financing essential investments for the country, it is rather a mechanism for appropriating large portions of the wealth socially produced by this small group and for “blackmailing” the government by financial agents,[xliii] including international. The effects on private productive investment are also evident, as its opportunity cost rises: banks are less interested in lending and companies are less interested in investing. Thus, depending on the banks and institutional investors, rentism will continue to be the flagship of Brazilian capitalism.

*Ilan Lapyda holds a PhD in sociology from the University of São Paulo (USP).

Originally published in FONACATE Administrative Reform Notebooks, no. 23.


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[I] According to Marx, the very accumulation of capital contradictorily erects barriers to its continuity. “Overaccumulation”, therefore, refers to the situation in which reinvestment in the same enterprise/sector, by producing decreasing rates of profit due to the very limits of appreciation, creates obstacles to the process of capital accumulation.

[ii] Expressions used by Chesnais (2005, p. 39–40). This shows how the author emphasizes the political aspect of financialization (linked to interests of fractions of the capitalist class), although this could only assert itself from a specific configuration in which capitalism found itself.

[iii] Set of liberalizing measures put into practice in a short period of time in London's financial market, which ended up putting pressure on the markets of other countries to also make changes in this regard. One of the consequences was the banking concentration that gave rise to large investment banks.

[iv] There are still some regional stock exchanges in the country, but they serve specific purposes, such as the commercialization of agricultural products, or just publicizing the market and providing services to investors. Currently, B3 is the official stock exchange in Brazil and the only one where shares are traded.

[v] Central for Custody and Financial Settlement of Private Securities. It was a non-profit private entity, created in 1984, which offered registration, trading and settlement services for private securities (fixed income and derivatives). It became the largest depository of this type of securities in Latin America. In 2008, when it went public, it ceased to be a non-profit institution.

[vi] And a drop in the participation of “financial institutions” (mainly banks).

[vii] I made a brief comment on the strangeness of this phenomenon (LAPYDA, 2021).

[viii] Which, in turn, corresponded to about 80% of the number of trades and the financial volume of the Brazilian capital market (B3, 2018a).

[ix] This term is controversial and is often misunderstood. For Marx (1985, chap. VI; GORENDER, 1985, p. 39–40), all work that does not directly contribute to the production of goods (be they material goods, services, etc.) is “unproductive”, that is, it does not generate new value or surplus value, but it is paid with part of it – even if its concrete dimension is necessary for the reproduction of capital or social life. In general, accounting, surveillance, financial intermediation, etc. are, therefore, considered unproductive by the author.

[X] From Jan/2006 to Dec/2020, an average of US$ 19,4 billion per year (current values) or almost R$ 80 billion in constant values ​​(adjusted by the IGP-DI) were raised. This represented 1,53% of B3's market capitalization in Dec/2020. In addition, large companies have the possibility of financing abroad.

[xi] In Brazil, “178 companies were identified that announced a total of 881 buyback programs in the period between 2007 and August 2016” (CVM, 2017, p. 23).

[xii] Although the solvency ratio of Brazilian banks has declined throughout the 2000s, it has remained high: the international standard (from the Basel Accords) is a minimum of 8%; Brazil stipulated 11%; and the average for national banks was over 15%. As a result, only 37% of bank assets were linked to loans in 2010, a percentage that increased in the 2010s, reaching 46,4% in 2019 (DIEESE, 2011, 2020).

[xiii] Although those of public institutions are lower. In 2020, Brazil had the 2nd largest spread in the world (WORLD BANK, 2021)

[xiv] Its importance in bank revenues even increased between the 1990s and 2000s: there was an increase of 734,7% between 1994 and 2006, against a growth of only 74% in personnel expenses and an accumulated inflation of 157% (CAMARGO, 2009, p. 112).

[xv] This refers only to the insurance segment, excluding private pension products, such as PGBL and VGBL. Based on data from Silva et al. (2015, p. 28–29), it is interesting to observe, as a possible additional indicator of financialization, that the issued collection (net premium issued) of the “Credit/Guarantee and Financial Risks” segment increased 883% between 2001 and 2015 ( against an average of 662% of all segments), second only to the “Rural” segment (which increased an incredible 3.931%).

[xvi] Acronym for Free Benefit Generator Life. Although it is one of the most common forms of private pension, formally it is personal insurance.

[xvii] The assets controlled by these funds with a more aggressive and less regulated profile rose from US$ 200 billion in 1998 to more than US$ 2 trillion in 2007 (75% of which were managed by US owners), which contributed to the 2008 crisis ( CHESNAIS, 2016, p. 226).

[xviii] “The international diffusion of the principles of corporate governance driven by Anglo-Saxon investors contributes to the internationalization of a globalized rentier regulation in which the main source countries of concentrated money capital are placed at the center of a vast network, which is nourished by a growing part of the value produced worldwide” (FARNETTI, 1998, p. 205).

[xx] On average, the remuneration ratio of a worker and a CEO in the US jumped from 1:41 in 1980 to 1:531 in 2000 (SAUVIAT, 2005, p. 127).

[xx] Only in relation to mutual funds, the value of controlled assets decreased by about US$ 1 trillion between 2007 and 2008 (ICI, 2008, 2009)

[xxx] The authors explain that “until the end of hyperinflation in 1994, fixed income funds were simply short-term investment mechanisms. After 1994, longer-term bonds, new derivative instruments and, finally, an increase in the depth and breadth of the financial market appeared. Consequently, there was a greater demand for the professional investment management offered by the funds” (VARGA; WENGERT, 2011, p. 71).

[xxiii] Value adjusted to Feb/2021 reais by the IGP-DI.

[xxiii] Quota funds are not included in this number.

[xxv]“The stock of assets [financial in the economy] in relation to GDP also grew, rising from 61% in 1995 to 159% in 2010” (VARGA; WENGERT, 2011, p. 85).

[xxiv] And 15% of the “Private” segment (GILES et al., 2015, p. 74).

[xxv] The modality managed by unions or professional associations appeared in the FHC government, in 2001, but was only regulated in 2003, already in the Lula government. It remains, however, a minority in relation to those sponsored by companies, with 5% of the entities in 2010 and 7% in 2020 (ABRAPP, 2011, 2021).

[xxviii] Data (directly cited or used for calculations) on Brazilian EFPCs were obtained from consolidated statistics available on the website of Brazilian Association of Closed Supplementary Pension Entities for several years (mainly those related to 2000, 2010 and 2020).

[xxviii] These data refer to assets, not investments. However, the values ​​are close enough to allow comparison.

[xxix] Calculation based on Ipeadata (2021, section. GDP Brazil real change).

[xxx] In 2020 reais. Although the IPCA is the government's official inflation index, here the values ​​are corrected by the IGP-DI since it is the one used by ANBIMA in its historical series on investment funds.

[xxxii] Value calculated from Fenaprevi (2020).

[xxxi] “By placing assets under the 'umbrella' of investment funds, one circumvents, in a way, some points of regulation by the Secretariat of Complementary Pension Policies (SPPC), since investment funds are regulated directly by the CMN ” (DE CONTI, 2016a, p. 27) and “Interviews with pension fund managers pointed out that the main motivation for this resource to place public bonds under the umbrella of (often exclusive) investment funds is the expansion of the liquidity of these assets” (DE CONTI, 2016b, p. 63).

[xxxii] In this modality, the pension fund has a defined amount of benefit, so it needs to risk more in investments to honor this commitment.

[xxxv] However, these factors do not always fully guide strategies, especially in the largest EFPCs in the country. Petros, for example, increased its investments in variable income even after the 2008 crisis, taking advantage of the drop in prices, in a clear speculative movement. In addition, Previ, Petros and Funcef invested more in variable income than the industry average (DE CONTI, 2016b).

[xxxiv] In Feb/2021, taking into account the minimum percentages stipulated by the regulation of funds, at least 72% of the equity of fixed income funds was allocated in public debt securities. In the case of EAPCs, practically all (96%) of their allocation was in funds of the “Pension” class, which is also subdivided into “fixed income”, “shares”, “multimarket”, etc. Of the “Pension Pension” class, 83% of shareholders' equity was in the “fixed income” category, so that, also based on the minimum percentages stipulated by fund regulation, at least 59% was in public securities. Calculations from ANBIMA (2021a, p. 5–6).

[xxxiv] It is not possible to develop this discussion here, so we recommend the works of Maria Aparecida Jardim, from UNESP (doctoral thesis and related articles).

[xxxviii] For an analysis of the differences between the two regimes and their consequences, see Paulani (2008).

[xxxviii] Due to the current global and domestic crisis, interest rates have momentarily dropped, but the real rate is still one of the highest in the world. Also, in 2021, the rate rose again.

[xxxix] "The dealers are financial institutions accredited by the National Treasury with the objective of promoting the development of the primary and secondary markets for public securities. You dealers act both in the primary issuances of federal public securities and in the trading of these securities in the secondary market. Currently, the National Treasury has 12 dealers, of which nine are banks and three are independent brokers or distributors” (TESOURO NACIONAL, 2020).

[xl] Although this data is questionable because it presumably includes the “rollover” of the debt, a recent report by the Federal Court of Auditors confirmed the information: “With regard to the purpose of the indebtedness, R$ 1,4 trillion of public expenditure corresponded to the payment of interest, charges and debt amortization, and BRL 622,5 billion in non-financial expenses” (TCU, 2021).

[xi] "Bad debt refers to the increase in public debt resulting from the issuance of new bonds to finance past debt. Basically, it consists of rolling over the public debt without positive impacts on public finances and economic growth” (BRUNO; CAFFÉ, 2015, p. 55).

[xliii] The pension reforms already carried out and the tax and administrative reforms always in view are good examples of this. Instead of discussing the public debt (and the country's regressive tax system), diversionary alarmism is created to cut social rights in order to free up resources to pay interest.

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