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Visiting São Paulo is an intense experience. The Brazilian city is huge, packed with helipad-capped skyscrapers stretching as far as the eye can see. The 22 million people living in the centre and surrounding metropolitan zone make it South America’s most populous area by a wide margin.
Keystone Positive Change Investment Trust seeks to provide our clients with long-term growth by focusing on companies solving big, enduring problems. One of the main reasons for my trip was a meeting with Nubank, an app-based lender operating in Brazil, Mexico and Colombia. The Trust has been an investor since 2021.
Brazil’s traditional lenders are notorious for high charges that effectively exclude large swathes of the population from having accounts.
That encourages many to borrow from friends, relatives and neighbours – which can put those parties’ finances under strain – or to turn to loan sharks instead.
Nubank first disrupted the market with a no-fee credit card eight years ago before expanding into other financial services, including savings, investments and life insurance.
One of the things I wanted to understand better was its management’s intent: whether executives were genuinely committed to serving low-income customers, as well as the company’s rising number of wealthier clients. We want it to do both because by becoming more profitable it can serve more people on the lower rungs of the earnings ladder. The worry would be if Nubank was only interested in attracting poorer account holders to swell its growth metrics.
I felt a pang of doubt upon entering the firm’s headquarters. Every other object was purple, the company’s corporate colour – coffee cups, a pool table, a giant ball pit and the merchandise in its newly opened store. Meanwhile, many of its youthful trainer-wearing staff looked like they belonged more to a hip Silicon Valley startup than to a socially focused enterprise. But I was reassured by a conversation with the bank’s global director of ESG (environmental, social and governance).
Christianne Canavero discussed financial education plans to ensure that the firm’s most vulnerable clients were better informed about risks and opportunities. And she shared details of a third-party study the bank had commissioned to check that its products reduced inequality as intended.
When I mentioned that the Trust had commissioned its own research into financial inclusion, it was also encouraging to hear that Nubank wanted to send a delegation to listen to the results.
That led to a cramped meeting two days later at the offices of Plano CDE, the consultancy of academics we had hired to do the work. Officials from the country’s central bank also attended by video link. The focus was Brazil’s so-called CDE classes, roughly defined as individuals and families living on less than 2,000 reais (£335) per head a month. More than half of the country’s 217 million citizens meet the criteria.
Notable findings included that 50 per cent of this group spends more each month than their income, and 37 per cent have reduced their food shopping to pay off debts.
A subsequent visit to Jardim Ângela provided supportive evidence of the difference Nubank can make. In 1999, the UN ranked the São Paulo suburb as having the world’s highest murder rate. These days it’s safer and on the rise, although it’s poorly served by public transport, among other challenges.
João was among the locals I met. The 27-year-old community worker has a young family and was saving money for the first time with the help of Caixinhas. This innovative Nubank facility lets users automatically pay savings into digital ‘money boxes’. Users assign each to a different goal, and progress bars show how close they are to affording the purchases.
One of the other reasons I was visiting Brazil was to explore the potential for investing in health-related opportunities. As such, I stopped in at Jardim Ângela’s healthcare centre. It was well-staffed, and patients didn’t need an appointment. But the problem comes when it refers them to a specialist.
Brazil’s public health system is free but suffers from underfunding, long waiting times and poor coordination. About a quarter of Brazilians instead pay for private care, primarily through employee health plans.
While in the country, I also visited several private healthcare providers. If they offered plans that were more affordable to low-income families, it would help take the strain off the overstretched public system.
But there are questions about whether they can do so profitably in some of the nation’s more remote towns and cities. Moreover, any investment into the sector threatens to exacerbate inequality. So it’s an ethical dilemma.
The trip made me recognise that some things remain outside the scope of a large asset manager whose primary responsibility is to protect clients’ capital.
That said, I do believe it’s an exciting place to invest.
Investments with exposure to overseas securities can be affected by changing stock market conditions and currency exchange rates.
The Trust invests in companies whose products or behaviour make a positive impact on society and/or the environment. This means the Trust will not invest in certain sectors and companies and the universe of investments available to the Trust will be more limited than other funds and trusts that do not apply such criteria. The Trust therefore may have different returns than a fund or trust which has no such restrictions.
This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed on the London Stock Exchange and are not authorised or regulated by the FCA.
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