BTG Pactual: hot stuff in Brazil What is the right way to think about the initial public offering of BTG Pactual? That the overly ambitious, acquisition-hungry Brazilian investment bank models itself on Goldman Sachs is hardly comforting. The last Goldman wannabe, MF Global, blew up and $1.6bn of client money is missing. But then BTG is the best homegrown investment bank in a hot region opening up to private capital and all the financial services that go with it. Strong support for the latter view can be found in BTG's prospectus, released on Tuesday. The bank could raise more than $2bn if the top of the pricing range is hit later this month (equating to a fully diluted market value of roughly $20bn). Revenues jumped by a third last year versus 2010, with an impressive showing across most businesses. Better still for investors is that employee costs only chewed up a quarter of revenues, compared with ratios of up to 50 per cent at other global investment banks. That played a big part in BTG's eye-watering return on equity of 22 per cent. For international peers to have such a ROE would require gearing levels no longer permissible post-crisis. But BTG achieved it with a tier one capital ratio of 11 per cent (to go higher post-IPO). Returns are also elevated because demand growth for financial services is ahead of output growth across Latin America, and banking less competitive. BTG boasts that its partnership culture (and therefore its low compensation ratio) will survive going public due to unusually strict rules on cashing out. The bigger risks for new shareholders are the typical ones for investment banks: Brazil's boom turns to bust thus hitting what may be a three times book value multiple; BTG expands faster than it should, particularly internationally; or that domestic competition suddenly intensifies. Brazil is not so different.