Bloomberg Línea — Not long ago, the Brazilian financial market witnessed the rise of independent research firms catering to retail investors. The era of single-digit interest rates made the stock market, in particular, a significant attraction for millions of new investors seeking information and recommendations on which stocks to choose. However, that time has passed, giving rise to new models.
For Empiricus, the largest research house in the country, with 200,000 clients on its investment platform and R$12 billion ($2.3 billion) in assets under custody, the strategy takes on new contours with the launch of banking products and services through its controlling entity, BTG Pactual. Empiricus has begun offering current accounts, transfers, credit cards, foreign exchange, and even loans, thanks to the transfer of its distribution platform infrastructure to the bank’s platform.
“It’s an evolution of the model. Other firms have pursued a similar path to what we did for a more comprehensive model: they’ve established asset management companies, consulting services, and connected to platforms because the content business is very cyclical. There are very good years when you grow a lot, and others that are tough,” said Caio Mesquita, CEO of the Empiricus Group, in an interview with Bloomberg Línea.
According to him, quantitative research with the entire client base and qualitative research indicated interest in using banking services already offered by BTG Pactual under its brand. One of the main bets is a credit card with the Empiricus brand and Mastercard logo in Platinum and Black versions, providing access to research team recommendations and discounts on certain premium publications.
“When you extend your relationship with subscribers beyond content and move into asset management, brokerage, and now banking, it reduces churn [a metric for attrition] and stabilizes revenue. The idea is that this customer, who already has a stronger connection, can benefit from the relationship,” said Mesquita, who co-founded Empiricus in 2009 with Felipe Miranda and Rodolfo Amstalden.
“In the end, we’ve become a one-stop-shop for financial services, with research as our differentiator, which sustains and deepens the relationship,” the Empiricus CEO stated.
The addition to the strategy comes at a time when fund inflow data is starting to show signs of recovery, in line with what has been seen in the market with the beginning of the monetary easing process by the Central Bank. This emerging trend includes investors seeking more traditional fundamental analysis reports.
This is one of the characteristics of Empiricus’ client base, according to Mesquita. “It’s a relationship with a different client profile compared to the market average. They like to understand the subject, read the reports, and prefer not to outsource the allocation decision,” he explained.
At the height of the exuberance in the Brazilian financial market in late 2021, Empiricus’ client base reached 450,000 subscribers. Today, it has 350,000 people, according to the executive.
The integration project with BTG Pactual’s platform lasted over a year and was led by Vinicius Bazan, Empiricus’ Product Director. New features are expected to be offered in the coming months, such as foreign investment, which is being developed by the bank and aligns with one of the main trends in the Brazilian market.
Preserving the Empiricus brand is supported by the understanding that it ends up being complementary to the investment bank’s strategy and the retail-focused platform, Mesquita said.
The transfer of Empiricus’ DTVM (Authorized Asset Management Company) infrastructure to the bank will also mean a reduction in expenses and the gain of synergies and efficiency from a back-office perspective, as well as an expanded product offering. These products go beyond financial services and include investments - more than 1,500 funds that become accessible.
Mesquita did not disclose the extent of the expense reduction or staff size and said that layoffs announced over a year ago and the suspension of new hires helped the operation adjust to the new reality with shared infrastructure.
Currently, there are 450 professionals in the group, which also includes the websites Seu Dinheiro and Money Times, producing investment-related content and generating leads - personal data that can lead to the acquisition of new subscribers.
“At the end of the day, Empiricus’ research continues to be the gateway and the main channel for client acquisition,” Mesquita said.
Share of Wallet
Discussing the evolution of research houses, Empiricus’ CEO referred to a movement that began back in October 2018 with the launch of Vitreo, following the founders’ belief that having an asset management firm that could replicate at least some of its analysts’ recommendations made sense. A year and a half later, in 2020, Vitreo also became a DTVM, meaning it started distributing products such as funds.
The goal behind this move was to capture an additional fraction of the clients’ share of wallet, on top of the transactional side. Currently, about 50% of the group’s revenue comes from research, while the other half comes from transactions.
Empiricus was acquired by BTG Pactual in May 2021, in a deal that also included Vitreo. The announced value at the time was R$440 million upfront and an additional R$250 million ($49 million) in bank units.
The market for independent research houses has also seen consolidation through XP, which initially acquired a minority stake in Levante in August 2021, for an undisclosed amount. In early 2022, the company founded by Guilherme Benchimol acquired the Modalmais investment platform, which, in turn, had acquired Eleven Research, founded by Adeodato Netto.
XP also acquired a minority stake in Suno in early 2022.
Under XP’s umbrella, Levante has established itself as an analysis house serving B2B clients, primarily investment advisor offices (formerly known as autonomous agents), while Eleven remained primarily focused on retail - losing Adeodato at the end of 2022.
Nord, founded by Renato Breia, Marília Fontes, and Bruce Barbosa, was the only one that remained truly independent among the largest players in the market. It launched its own asset management firm in 2021 and invested to grow in wealth management, as reported by Bloomberg Línea.
Empiricus CEO Mesquita believes that the more comprehensive model that combines content with transactions is here to stay in the next few years.
The outlook will depend on macro factors, such as the country’s growth and income levels for Brazilians, as well as micro factors, such as the continuation of the phenomenon known as financial deepening - the sophistication of financial and investment habits among the population.”
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