Jan 20, 2022 · 48m · capital-allocators
Florian Bartunek – Equities in Brazil at Constellation Asset Management (Manager Meetings, EP.27)
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Manager Meetings, Greg Dowling interviews Florian Bartunek, CIO of Constellation Asset Management, to explore fundamental equity investing in Brazil. Bartunek shares insights on identifying high-quality compounders, developing an analytical edge, navigating emerging market volatility, and cultivating top investment talent.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 13.1% of the talking time here. How this is scored →
Ted as informed peer 2.1 Guest teaching 2.6 Guest disagreement 0.4 Ted pushing back 0.0
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:35 Dismissing cheap value investing in emerging markets
Florian firmly rejects the standard premise of searching for cheap bargain stocks in emerging markets, arguing that growth is the only effective hedge against currency risk.
Hardest push from Ted ▶ 15:21 Challenging the premise of active managementGreg directly asks why allocators shouldn't simply buy passive Brazilian index products, prompting Florian to justify the entire active management thesis.
Biggest teaching moment ▶ 14:05 Explaining foreign entrant failures in Brazilian banking and retailFlorian educates Greg on the unique structural hurdles and red tape that give domestic incumbents sustainable 20% ROEs while foreign multinationals consistently fail.
Ted holds their own ▶ 39:30 Grounding Brazil's risk framework in global contextGreg frames macro and political risks in emerging markets while demonstrating understanding of Brazilian resilience across multiple economic cycles.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Legal and Regulatory Disclaimers for Capital Allocators | 1 | 1 | 0 | 0 | Ted Seides opens with the standard intro, followed by Greg Dowling welcoming Florian Bartunek. Florian introduces his thirty-year career journey in Brazil, spanning proprietary trading to long-only compounding. | |
| Mentorship Insights, 3G Partners, and Reading Discipline | 2 | 2 | 0 | 0 | Greg mentions seeing western classics in Florian's office and asks about mentors like 3G. Florian elaborates on reading classics, learning from Bruce Greenwald, and constantly re-reading Buffett letters. | |
| Overview of the Brazilian Economy and Stock Market | 2 | 3 | 1 | 0 | Greg asks for a foundational overview of the Brazilian equity market. Florian details Brazil's demographics, tech adoption, liquid markets, corporate governance, and why local incumbents have high structural moats against foreign entrants. | |
| The Case for Active Management in Brazilian Equities | 3 | 3 | 1 | 0 | Greg asks why allocators should choose active management over passive index exposure. Florian explains that the indices are dominated by 'old Brazil' commodities and banks, while active local managers access specialized compounders and high alpha. | |
| Constellation's Investment Philosophy: Compounders and Quality Growth | 2 | 4 | 1 | 0 | Florian articulates Constellation's focus on quality compounders and owner-operator businesses, arguing against buying value traps or low-quality cheap stocks. He stresses that in emerging markets, growth is the best hedge against currency volatility. | |
| Cultivating Investment Talent and Building a Learning Culture | 2 | 3 | 0 | 0 | Greg asks about recruiting investment talent in Brazil. Florian describes Constellation as a learning hospital that exposes interns directly to executive meetings and outlines the evolutionary pyramid of an investor from journalist to stock picker. | |
| Sponsor Message: Ridgeline Front to Back Platform | 0 | 2 | 0 | 0 | A sponsor break from Ted Seides precedes Greg asking about gaining an informational edge. Florian explains that true edge comes from studying disruption in private markets and observing developed international markets. | |
| Portfolio Construction, Sizing Rules, and Avoiding Major Errors | 3 | 3 | 1 | 0 | Greg asks about portfolio construction. Florian outlines rules around position sizing (8-10% cap for liquid names), barbell balance, avoiding leverage and overconcentration, and why investors in their 30s tend to overcomplicate things. | |
| High-Conviction Stock Opportunities Across Key Brazilian Sectors | 2 | 3 | 0 | 0 | Florian runs through high-conviction portfolio picks including WEG, Rede D'Or, XP, Raia Drogasil, Totvs, and Localiza, highlighting how owner-aligned management and industry tailwinds fuel compounding earnings. | |
| Valuation Landscapes: Low-Growth Value Versus High-Growth Compounders | 3 | 3 | 0 | 0 | Greg asks for a valuation breakdown between the broader market and top compounders. Florian explains that low-growth cyclical names trade at single-digit P/Es while high-quality compounders trade at attractive PEG ratios below 1.0. | |
| Managing Macro Uncertainty and Capitalizing on Cheap Valuations | 3 | 3 | 1 | 0 | Greg inquires about macro and political risks. Florian differentiates quantifiable risk from uncertainty, explaining that recent 30% drawdowns were pure multiple contraction while underlying earnings grew, creating an opportune entry point. | |
| Recommended Investment Books and Essential Business Literature | 2 | 1 | 0 | 0 | The conversation concludes warmly with Florian recommending Dale Carnegie and Bruce Greenwald, suggesting tourist activities that showcase authentic Brazilian consumption, and joking about Brazil's World Cup chances. |
Statements from this episode (25)
Founded Proprietary Fund for AB InBev and Kraft Heinz Founders
“And after eight years at the bank, I started, let's say, a proprietary fund for three families who currently
Are the largest shareholders of ABI InBev, Kraft Heinz, Burger King, and others.”
Nubank Has 50M Customers and a $45B Valuation
“Nubank is the largest digital bank in the world with almost 50 million customers. It's now trading at a forty five billion dollar valuation. Warren Buffett Berkshire Hathaway actually invested in a private round and in the IPO. Sequoia, SoftBank are investors.”
Foreign Banks Struggle in Brazil While Local Banks Earn 20% ROE
“Local incumbents have a lot of competitive advantages, so it's very hard for a foreign company to be profitable in Brazil, with the exception of Santander, which actually acquired a big local bank here in Brazil. Very few international banks make money in Braz…”
Brazil's Corporate Governance Is Among the Best in Emerging Markets
“I would dare to say that corporate governance is the best among emerging markets here. If not the best, among the best, definitely.”
Brazilian Stock Indices Are Dominated by Commodities and Legacy Banks
“So, when you look at the Ibovespa or the MSCI, again, commodities are the majority of the index plus large banks.”
Passive Investing in Brazil Exposes Investors to Legacy Industries
“So when you go passive, it's almost like investing the old boring Brazil. Steel, fuel distribution, mining, great companies, but it's not the future, it's not the most innovative companies.”
Brazil's Largest Pharmacy Chain Is Out-Opening All Competitors Combined
“The largest drugstore and pharmacies, let's say chain in Brazil, they're opening this year more pharmacies than the combined number of their competitors.”
Valuation Gap Between Top and Mediocre Companies Is at All-Time High
“The valuation gap between the best companies and the so-so companies has never been as wide as it is today.”
Growth, Not Value, Is the Best Currency Hedge in Emerging Markets
“The currency risk is relatively expensive most of the time. So the best hedge for the currency and for volatility is growth in emerging market. It's not value.”
Constellation Returned 6x to 12x in Top Brazilian Market Leaders
“We made 12 times our money in the largest education company in Brazil, six times our money in the largest e-commerce business in Brazil, eight times our money in the largest drugstore in Brazil. And this is eight years, six years, seven years, and just betting…”
Lone Pine Capital Is a General Partner in Constellation Asset Management
“Lone Pine Capital is a good friend of us, and a GP in our business.”
Developing Opinions on Stocks Is Rarer Than Evaluating Business Models
“Everybody can be a journalist just taking notes. Most can do good spreadsheets. Most can have an opinion on the quality of businesses, but it's very hard to find analysts or portfolio managers that have the talent to have a opinion on stocks.”
Analyzing Brazilian Banks Requires Researching Global Private Fintechs
“In order to understand a Brazilian bank, you have to look at the private banks, the startups, and you have to look at the international banks, either JP Morgan or Chime or Revolut or others.”
Fund Managers Should Never Hold 15 Percent Positions in One Company
“You shouldn't have In the long run, 15% in one company. You shouldn't, because again, this is a competitive business. We are not managing our own money, and we don't care. No, this is a competitive business. You shouldn't have 15% in one company. Of course, if…”
Investors in Their 30s Are the Most Dangerous Because They Overthink
“I love the sixty-year-olds or fifty-year-olds. I love the twenty-year-olds. The 30, 35 are the most dangerous. Why? Because when you're 50, 60, you saw a lot of things, and you simplify. You know what works, what doesn't, and you do it very simple. When you're…”
Over Half of WEG's Products Were Launched in Past Five Years
“More than half of their products were launched in the last five years, and this is one of the best managed companies in Brazil.”
WEG Can Deliver 25% to 30% Annual IRR at Current Multiple
“It's been a great performer, but we see a 25, 30% IRR per year at the current multiple.”
XP Trades at 20x Earnings While Growing Earnings 30% to 35%
“And XP is growing with a better product, a more sophisticated offering, and the stock trades at 20 times earnings, which is a bargain, growing earnings at 30, 35%.”
Brazilian Pharmacy Chain Raia Drogasil Opens 300 Stores Annually
“As I mentioned before, it's opening 300 locations a year.”
TOTVS Grows 20% to 25% Annually at Discount to US SaaS
“It's a subscription-based business growing top line and earnings at 20, 25% a year, trading at a big discount to the big software as a service companies in the US or in other markets.”
Localiza Earnings Will Grow 25% to 30% Annually Post-Acquisition
“So we expect earnings to go at 25, 30% a year with synergies and the growth of the market.”
Mercado Livre Trades at 100x Earnings with 40% to 50% Growth
“You also have some highly innovative companies like Mercado Livre, which is the leader in e-commerce in Latin America, trading at 100 times earnings, 90 times earnings, but these are growing earnings at 40, 50% a year.”
High-Growth Brazilian Stocks Trade at Half the US Revenue Multiple
“What I would say is that Brazil is cheaper in terms of price to growth. So when you look at the price to growth, most of these compounds are trading at .8.75. So compared to the U.S., they're relatively cheap. And the high growers, let's say the really high gr…”
Holdings Fell 30% While Earnings Expectations Rose 5% to 8%
“When we look at our businesses, in the last six months, on average, the companies fell 30% from the peak. Some fell 40, some fell 15, But on average, 30. When you look at earnings expectations, they are, after the third quarter earnings, they were up five to e…”