Historical Notes: CRESCINCO, Conta Garantia, first money market fund The First Money Market Fund: Conta Garantia

Historical Notes (Continued)

CRESCINCO and Conta Garantia

Conta Garantia : The first money market fund, created in the last half of 1968 and administered by S-N Investimentos S.A. for a quarter of a century.

Brazilian Letra de CambioThe 'letra de câmbio' was popular in the early Brazilian market

This fund was invented by John Oswin Schroy as a vehicle to facilitate the sale of letras de câmbio (low denomination commercial paper certificates) to small investors. It was designed to solve a specific problem:

Investors would purchase short term 'letras de cambio' that came due with interest within a year. Investors often wanted to reinvest the proceeds. However, since the proceeds included interest and never matched the par value on these securities, it was difficult to efficiently roll-over small investments when due. The Conta Garantia was designed to solve this problem.

The idea of using a collective vehicle to sell commercial paper to small investors had been around in Brazil since the late 1950s, with the invention of the closed-end 'fundos de acceptance'.

However, the Conta Garantia was a true money market fund, with modern features.

Conta Garantia Advertisement (The first money market fund)Advertisement for world's first money market fund. February 1969
  • It was structured as an open-end mutual fund;
  • It had a persistent unitary par value, readjusted daily by issuance of fractional quotas, based on current net asset value;
  • It invested in a portfolio of short-term commercial paper and treasury bills;
  • It published 30-day projected returns, varying daily with changes in interest rates;
  • It could accept investments in any amount, by issuing fractional quotas;
  • It operated with book-entry custody of investor quotas, issuing monthly statements.

In the late 1960s, a spirit of innovation dominated the Brazilian capital market and it was easy to implement new capital market ideas.

Conta Garantia was set up in one day and papers were drawn up by the firm's lawyer, Renato Gomes de Souza, so that the product could immediately be put on the market. There was no need to register with the SEC (there was no SEC) and start-up costs were nominal.

As originally conceived, this fund was intended as a convenience to small clients of S-N Investimentos S.A..

However, the larger potential of the idea was soon apparent and John Schroy initiated an advertising program, including a three-story billboard next to the Rio de Janeiro Stock Exchange, direct mailings to 25,000 investors, and a TV commercial featuring an animated cartoon.

This product soon attracted the attention of the powerful banking industry that recognized the competitive advantage of the money market fund concept.

Within a few months, the bankers' association sent a delegation to John Schroy, suggesting that sales of the product be halted or at least that advertising cease. Their only argument was that they didn't like the competition.

John Schroy refused and soon was invited to the office of Delfim Netto, the Minister of Finance, a Paulista with little affinity for stock brokers or the capital market, and a friend of the banking interests. The Minister ordered John Schroy to cease advertising Conta Garantia and prohibited sales other than over-the-counter at the company's office.

This drastically restricted the expansion possibilities of Conta Garantia, but the fund continued on for a quarter of a century.

Schroy sold his interest in S-N Investimentos in 1971. By the 1990s, Conta Garantia had grown to about US$ 200 million (equivalent) .

Today there are hundreds of money market funds in Brazil.

[The first U.S. money market fund, the Reserve Fund, was created in 1970 by Bruce R. Bent, two years after the Conta Garantia was created in Brazil. ]


CRESCINCO: Brazil's first major open-end equity mutual fund was founded in 1958 using syndicated assets left over from failed Interamericana underwritings.

During the early 1960s, door-to-door sales of CRESCINCO quotas were the primary force driving stock prices on the Rio de Janeiro and São Paulo Stock Exchanges. A commissioned sales force with over one hundred agents were the basis for CRESCINCO's success.

At one point in the early 1960s, the directors of CRESCINCO decided that, in order to save commission expense, they would no longer sell the fund through independent distributors. The distributors retaliated, putting signs in their windows say, 'CRESCINCO shares no longer redeemed'.

This, of course, sent investors into a panic. There was a rush to redeem CRESCINCO shares that caused the stock market to fall sharply. CRESCINCO directors quickly recognized their mistake. Things were patched up with the distributors and the market recovered.

The fund was administered by "Cia. Empreendimentos e Administração - IBEC" of the Rockefeller IBEC group (New York).

In 1960, the executives of the CRESCINCO fund management company were: Theodore E. Seiler, Helmut W. Wreschner, Richard S. Aldrich, and Hans Jurgen Horch.

Other equity funds in Brazil in 1960 were:

  • The Valéria Funds: (Rio de Janeiro) Four closed-end funds, named after the wife of Clarence Dauphinot Jr., were distributed and managed by Deltec S.A.
  • Fundo Atlântico: (Rio de Janeiro) A small open-end fund distributed and managed by Cia. Atlantica de Investimentos CATLANDI.
  • Fundo Brasil de Participações em Valores: (São Paulo) A small open-end equity fund organized in 1954, distributed by Sociedade Campos Fraga de Valores Ltda. and managed by an investment council composed of Júlio de Queiroz Filho, Egberto Campos Fraga, Francisco da Cunha Sobrinho, João Lara Meirelles, and Nelson Spinelli.


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