Managers See Fiscal Vacuum in the Election and High Interest Rates as a Brake on Venture Capital in Tech

Just days before the first round of the presidential election, Brazilian managers point to a mismatch between market demands and what has been discussed in the campaigns of Luiz Inácio Lula da Silva (PT, Brazil's Workers' Party) and Flávio Bolsonaro (PL, Brazil's Liberal Party). The most sensitive issue is the absence of a clear fiscal agenda on both sides, according to a debate held this Tuesday, September 29, during the TAG Summit, an investment conference in Brazil.

The panel brought together Bruno Funchal, CEO of Bradesco Asset, André Leite, CIO of TAG Investimentos, and Maurício Moura, a partner at the Zaftra fund, according to a report by NeoFeed, a Brazilian business news outlet. The three assessed the fiscal outlook, the trajectory of interest rates, and the market's positioning in light of possible election outcomes.

Fiscal Policy Absent from the Election Debate

For Funchal, adjusting public accounts simply never entered the electoral race because it doesn't win votes.

We won't have this discussion in the election; it's not a topic that wins votes.

Bruno Funchal, CEO of Bradesco Asset

Even so, the asset manager is working under the assumption that some fiscal adjustment package will be implemented starting in 2027, regardless of who wins. Funchal cites changes to mandatory spending rules as the most likely path, since "spending grows too much and the budget is too rigid."

At TAG Investimentos, Leite sees quite different scenarios depending on the winner: a deeper fiscal adjustment if Flávio wins, and a "big question mark" if Lula is reelected. Moura, from Zaftra, was harsher about the lack of proposals from both sides: in his view, voters head to the polls without understanding either camp's vision for the country.

First or Second Round?

The base-case scenario for all three managers is a runoff between Lula and Flávio, in line with polls showing the candidates in a technical tie. Moura, however, points to a combination of factors that could bring forward the decision.

• Higher abstention, which reduces the number of valid votes and concentrates the outcome.
• Migration of voters from smaller candidates to the leading opposition name in the campaign's final stretch.

"The probability of an opposition win in the first round is not negligible. Quite the opposite: it's higher than in previous years," said Moura. Leite, for his part, still bets on a runoff, but believes the market is "poorly positioned" for a possible Flávio win: "perhaps it has priced in 15% to 20% of that move," said TAG's CIO.

Interest Rates: The Bottleneck That Matters to Startup Financiers

The point that most affects the tech market in this conversation is the trajectory of the Selic, Brazil's benchmark interest rate. According to Leite, a single-digit interest rate level would be necessary for investors to move away from the CDI, Brazil's interbank rate benchmark, and shift into riskier assets, a category that includes stocks, venture capital funds, and private equity.

TAG's CIO, however, views the current rate-cutting cycle with skepticism. He notes that the Banco Central, Brazil's central bank, has been carrying out cuts of just 0.25 percentage point per round, a slower pace than usual in easing cycles, and he sees a risk of renewed rate hikes if Lula wins.

Funchal reinforces the reading of inflationary pressure ahead: "Looking coldly at the shocks expected going forward, the trend would be to raise interest rates. We could see an El Niño shock, the end of the 6x1 work schedule (Brazil's six-days-on, one-day-off labor arrangement), oil. These are all upside risks," said Bradesco Asset's CEO. Despite this, the asset manager projects a decline in interest rates in 2027, betting that the economic slowdown will make room for the Banco Central to resume cuts even with these risks.

What This Means for Founders and the IT Market

The source doesn't speak directly about technology, but the logic the three managers describe is the same one that has shaped risk-capital appetite in Brazil since the monetary tightening cycle that began in previous years. A double-digit Selic makes the CDI too competitive against any equity bet, and this applies both to listed stocks and to venture capital rounds for startups.

In practice, for anyone raising money for a startup or tech business, the managers' message is that a lower interest rate scenario, which would help unlock valuations and reopen the fundraising window, depends on two factors that remain uncertain: the outcome of the election and the definition of a fiscal adjustment that, according to Funchal himself, isn't even expected to enter the campaign debate. This pushes the decision on reforms to after 2026, with the market only partially pricing in a scenario of an opposition win that, according to Leite, is still underweighted.

With this uncertainty, equity managers acknowledge that assets tied to real interest rates, such as stocks and NTN-Bs (Brazilian inflation-linked government bonds), tend to react differently depending on the election outcome: better performance in the case of Flávio, according to Leite's reading, and already stressed trading in the case of Lula's reelection, with the real as the most vulnerable asset in that second scenario. For founders who depend on foreign capital or on local funds sensitive to exchange rates, this is the variable to watch in the coming weeks: what happens to the real tends to foreshadow investors' appetite for risk in Brazilian tech, according to the reading described by the managers themselves at the event.