Essentially, the development of the Brazilian mutual fund industry can be traced back to the 1994/95 Rio Plan. Before this, the vast majority of funds were simply invested overnight in government paper, a route which afforded some protection against inflation rates which hit a peak of 86% per month at one stage in 1984.

Over the last two to three years however, a transformation has taken place. Inflation has fallen to around 4% to 5% per annum and investors have started to think in terms of growing assets rather than just protecting them.

While the bulk of invested money remains in fixed interest funds, equities now account for around 20% of the $140bn market, having grown from $4bn at the end of 1995, and $8bn a year later. Equity funds took in $600m per month in the first quarter this year, rising to $2bn in both May and June, and then $2.5bn in the first 15 days of July before a market downturn reversed the trend.

Paulo Cunha, product manager for Banco Pactual (the largest of the investment bank providers with $4bn under management), says it is difficult to assess how many funds there are in total as every day brings something different". Certainly the Brazilian market is now highly active with launches of privatisation funds, growth funds, index funds, a whole range of guaranteed and hedge funds as well as a variety of fixed interest vehicles.

Foreign investors tend to access the market via the growing number of offshore funds, with many of the Brazilian banks, like Banco Pactual, offering vehicles from a Cayman Island base. On the domestic front, while the retail investor is a major buyer, mutual funds are also bought extensively by institutional investors as a more tax efficient route than buying direct. The multi-manager asset allocation approach is growing rapidly.

Cunya confidently ex-pects the mutual fund market to grow to $300bn or more over the next couple of years, partly with general economic growth, and part-ly as investors get more fam-iliar with the products. David Hunt"