Brazilian Investment Firm Gávea in Talks to Buy Back Control from J.P. Morgan

By Luciana Magalhaes 

SÃO PAULO--Founders of Rio de Janeiro-based investment management firm Gávea Investimentos are in talks with executives at J.P. Morgan Chase & Co to buy back control of the Brazilian firm, according to a person familiar with the talks.

Back in 2010, J.P. Morgan, through its hedge fund Highbridge Capital Management, paid an estimated $270 million for a 55% stake in Gávea with an option to acquire the remaining 45% over the course of the following five years.

Earlier this year, the two groups started discussions to review the terms of the original agreement, according to the person familiar with the talks. The two firms are now studying an arrangement which would give the firm's control back to its founders. The format of the possible deal hasn't been set and there is no guarantee an agreement will be reached, according to the person.

Gávea was co-founded in 2003 by Arminio Fraga, the former head of Brazil's central bank. Gávea had BRL18.1 billion ($5.8 billion) in assets under management as of February, according to the firm's website.

Mr. Fraga, who managed funds for George Soros in the 1990s, became Brazil's central bank chief in 1999 after the country devalued its currency.

The economist was a senior adviser to opposition candidate Aécio Neves in last year's presidential election, and had been tapped for finance minister in the event Mr. Neves won the presidency. But Mr. Neves was defeated by President Dilma Rousseff in one of the most competitive elections in Brazil's history.

It would make sense for Mr. Fraga to turn his full attention back to Gávea, according to Luis Santacreu, a financial sector analyst at local rating agency Austin Rating.

For J.P. Morgan, meanwhile, renegotiating control with the Brazilian partners would be a way to retain Gávea's current staff, the analyst said.

Brazil today faces several challenges, including a stagnant economy and high inflation, which has reduced the appetite for some international firms to invest in the country. When J.P. Morgan bought Gávea, the country was growing at a 7.5% rate. Now Brazil is teetering on recession.

That could be another reason to make sure Mr. Fraga and his team won't move on. " Times like this require higher ability to do business," Mr., Santacreu added.

Write to Luciana Magalhaes at [e-mail]

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