Roberto Campos Neto analisa impacto da guerra no juro e a evolução dos investimentos no Brasil

Thank you very much, Raquel. It's great to be here with you all again.

We have been living with a lot of uncertainty in the investment environment. It's not the first geopolitical crisis that affects, let's say, global growth prospects, neither short-term nor medium-term, nor will it be the last. I think we have lived through a sequence of geopolitical crises. These crises had a very important effect on the reconstruction of global value chains, which is still ongoing. When we think about a new oil crisis now, it has an aggravating factor, which is that today we have a world with much less freedom to conduct counter-cyclical policies. What does that mean? Sometimes you have a crisis, the government goes and implements a counter-cyclical policy to mitigate the effect of that crisis. In the case of oil, in Brazil, for example, we have the possibility of implementing a tax reduction, or other countries do it differently. But the world is so indebted and all countries have so much debt that the governments' room for maneuver to implement policies, let's say, to face an energy crisis is smaller. So I think yes, it affects. In the case of Brazil, it affects the fertilizer part a lot, the entire agricultural chain. Depending on whether it's diesel or gasoline, it affects logistics in one part and directly affects inflation. We've had the last two inflation numbers a little worse. I don't think it's structural, but it's something that draws attention.

It requires more caution. And we also don't know the duration of this war and what the implications will be. We have a strait with a strategy that has very large strategic implications for oil trade. We see that today attacks are made with drones, so it's harder to monitor the strait. We're seeing a lot of drone and mine attacks, which are things that weren't so common in the past. So, I think there's more uncertainty for the investment world, it certainly influences. And an energy shock is always a bad shock, because on one side you increase the price, on the other side you decrease the quantity. So it's that shock that decreases growth and increases inflation. It's the most undesirable thing possible for a government to have an energy shock. So, I think we are in a sense in a shock that is quite complex for the world and for the government, both Brazilian and others, with less freedom of maneuver. And then regarding your first part, which is about investments, I think there are some relevant things to talk about that have been happening and have intensified in recent years, which is a major transformation of the investment industry. We have the theme of structured credit that grew a lot in the United States. We are now seeing great uncertainty regarding this credit that is outside the financial system. In the United States we call it NBFI, which is Non-Bank Financial Intermediation, which is credit outside the system. We are seeing that large credit managers have started to freeze withdrawals. We have a crisis in this sense. This is a market of about 4 trillion. So it's not a market that generates a great systemic crisis, but it draws attention. It started to be sold more to retail in recent times. So there's an implication. In Brazil, this world of credit innovation is done through funds. Funds have multiplied a lot. We are seeing today special attention to everything Brazil is going through in looking at these funds. I think there's also a growth of passive instruments, ETFs, we're seeing very large growth, this is totally changing the industry. And we have this flood in Brazil of tax-exempt bonds, which are bonds that don't pay tax, which make the management of those who do money market and those who are taking risk more difficult. And I think lastly there's this fiscal dynamic that goes back to the initial point we discussed, which is the world won't be able to work with interest rates as low as it did before the pandemic, because there was a surge in spending that hasn't been controlled to this day. So we're going to have higher interest rates, growth in the globe is lower, it's around 3%, we might even have a downward bias depending on the implications of this crisis. So again, governments have more problems and fewer degrees of freedom.

Yes. Exactly.

We lived in a world for a long time where basically the CDB was an exclusive funding instrument for large banks, small banks didn't have that. I think there was a universalization and democratization of access to funding, which was part of a project, a schedule that came from banking opening in Brazil many years ago. So, we see more access to smaller banks, to CDBs, which made the rates of large banks have to rise a little, because they paid a very low rate but there was no competition in this funding world, so you had a convergence. On the other hand, you see today that there is a concern about what the guarantee of the CDB is, which is, let's say, the FGC. And I think we will go through a period where we will have to re-evaluate what the FGC is, how the FGC will be, how we have an incentive that is correct for the issuer, the distributor, and the buyer. But I think this democratization of funding is here to stay, it's a very good thing, it generated competition in the industry, it generated the capacity for several smaller banks to expand, to have new credit businesses. Obviously, we need to keep an eye on the security of the system. But I think it's important to have this more open funding capacity for smaller banks that want to do banking activity.

First, you democratized access. So first, you had more people entering the investment world. Then it became easier to access products, because platforms can distribute products. Today you can buy products on your own phone, so you no longer have that figure of having to go to an advisor. Sometimes you had to go to a branch to schedule an investment, so it became easier. Another thing, information is more available. And we're not even talking about Open Finance, because Open Finance creates, let's say, real-time competition for investment products that will make you have even more innovation. So I think we went through this process where there are more people with more options, with more investment options. What we need to be sure of now is that the incentives are correct so that we don't have misaligned incentives between those who distribute, those who buy, and those who issue.

Exactly. And it's not just the FGC, there are other products, for example, a company that does credit origination and distributes all the origination on its own platform. Does this exist? Is there a conflict of interest in this? How do we protect the person who is buying? How do we make all interests aligned? It goes, I think, much beyond the FGC, it goes beyond a policy of reducing adverse incentives. And it's important, for those who manage the platform, to be able to measure the customer's satisfaction level, the average profitability of their products for a customer. If you have a platform, your goal is to have the maximum possible profitability for your clients. So, if you see that the client is making some choices that may not be 100% in their profile or that they don't understand, again, I think artificial intelligence will make all of this much better and much easier, because it will be able to give feedback to clients, it will be able to follow up, it will even be able to follow what we call post-trade, that is, after you made your investment, what happened with your investment from that moment forward. So I think this will further accelerate access and ease for people to invest.

Yes, I think we have a know your client, which is a policy of trying to know your client, which always needs to be improved. I think some platforms sell structured credit products where the client doesn't always have 100% perception of what they are buying. I think it's important to have transparency in this. The client also grows because they get more information, they update themselves on investment options. I think it's important for platforms to also teach. There's a part of the platform that is, let's say, a vehicle for financial education so that people know. I think we are going to enter a very near future where we will have artificial intelligence helping people with advisors, that is, giving investment recommendations, explaining, look, there's this type of investment, there's that one. So, I think we will grow a lot, people will grow a lot in financial learning. And it's important for us to have this capillarity, this diversification of investments, because on one side there's a buyer and on the other side there's a company that is doing funding, that is doing a project, that is generating a job. And I think it's important to have this competition. Obviously the regulator needs to become more robust too, because we start to have innovation, both in the distribution part and in the creation and origination of products. So, these things have to advance together.

Yes, savings have a way, actually, Raquel, that when interest rates fall a lot, it gets a little better. When interest rates rise, it gets worse. So we had interest rates at 2% during the pandemic, as there were some funds that charged 1%, 1.5% in administration fees, we reached a period during the pandemic where savings were a better product than many investment funds. So there's also this point that she mentioned now, as Brazil doesn't have today a visibility of working with much lower interest rates, then savings is an inferior product. So in the end, you have both sides of the coin. On one side you have a product that pays less to people and on the other side, because it pays less to people, it transforms into a funding, that is, a cheaper source of resources for housing financing. Then you say: 'Well, but I'm taking from the investor to, let's say, benefit those who are doing the housing financing.' So, then the big question is, am I doing an income transfer? It's an income transfer with allocation. Is it a fair income transfer? Who am I taking from? Who is paying for this housing financing today? Usually, those who invest in savings are people with fewer resources. Those who do housing financing, there are some who also have fewer resources, but there are others who have a little more resources. So, the other day the president of the Central Bank, Gabriel Galípolo, said something that savings is Robin Hood in reverse. And well, it's a bit true, because in the end, when we look at the process that exists today between an investment that pays less and a funding that is cheaper, you are taking resources from one place and transferring them to another. The ideal is for us to think, let's say, of a new savings formula where we can equalize market rates with some type of guarantee so that you continue to have funding for construction, which is a very important activity for Brazil, that generates a lot of employment, has all the benefits we know. Although today you already have other instruments, you mentioned the tax-exempt ones, for example.

There are the tax-exempt ones. We look a lot at the receivables certificates part, but they are LCI, but they are instruments where the funding is not always as cheap as savings. Obviously it depends on the level of interest rates you're talking about, but I think we have started to have a migration to other instruments. In my management at the Central Bank, I tried to stimulate these instruments a lot. There is a whole questioning of whether these tax-exempt bonds and the quantity of tax-exempt bonds that exist in the market are not creating, let's say, also an adverse incentive in investment, which I think is an important theme to discuss. But during my time at the Central Bank, the director Bruno, who worked with us there, used to talk a lot about this thing that we need to reinvent savings, we need to make savings have a phased reduction so we don't have this cross-subsidy. So we discussed this a lot. We sometimes said: 'No, savings will die a natural death, because people will become more updated about investment options and comparisons between returns and will end up taking money out of savings.' We see that in a total investment horizon, it starts to have an increasingly smaller weight, but it still continues to be a flow, it still continues to be a relevant instrument.

Yes, there's an investment thesis now, Raquel, that says the following: software companies gained a lot of productivity, managed to make better, more efficient software, more comprehensive at a lower price, because the same person who was there making software with the advent of artificial intelligence could be much more productive. So you started to have several software companies growing a lot, with market values growing a lot. And then there's a thesis that what actually made software companies elevate themselves, that is, what made the software company have a disruptive movement, is exactly what will be the disruptive movement of the companies themselves, which is, I now have an artificial intelligence so good and so easy to use, the prompt is so easy to do, that you no longer need a software company to make the software it makes for you today. You can have two or three people in your company who will do the same thing. So, we started to see some examples of very well-known software for internal and operational management of companies that are being replaced by internal processes of the companies themselves using artificial intelligence. So, it's that fable that one thing that made you disruptive will now be disruptive against you. And then there's also a theme of artificial intelligence where you pass not only to this software point but also to the advisory part, which is what you said, not only tax, it can be investment advice, it can have other types of advisors. So now AI is entering this part of being an advisor. There's also an execution part, which is a part that still has a very large restriction from regulators, which is, will AI one day do all the financial executions for you, will control your account, will pay your bills, will make the investment? Not only recommend, but also execute the investment. So, I think there's a whole part of where AI will reach. Today we can see that this is advancing very rapidly and there's a dimension that I think is super relevant, which is the data dimension too. How are we going to make AI more powerful? AI depends on data, data has to be available. In Brazil we have a very robust Open Finance, so there's an intersection between AI and Open Finance that I think is not yet 100% explored and will grow a lot with this tokenization thesis, which I think will accelerate this whole process you mentioned.

Artificial intelligence is doing, with some more modern tools, making operational flows easier, more transparent, faster, and execution being done with less need for human intervention. That is, AI is doing this in a more automatic way. So, I can see several examples. I think in this investment part we have what we call AI private banking, which is a moment where the client will interact with AI, which will recommend investments, which will plan their financial life, which will have an interaction in their daily life with personal finances. I think that's something we are already starting to invest in. I think it will grow a lot.