Refuting the Grizzly Research Report on XP: A Balanced Analysis

The Grizzly Research report on XP has sparked controversy by suggesting that the company operates in a pyramid-like model. However, this accusation lacks foundation and fails to consider widely accepted practices in the financial sector. Let’s analyze why this criticism does not hold up and clarify some important points.

1. Fund Structure and Risk Management

XP, like many other banks and brokerage firms, uses investment funds to "book" operations with its clients. This practice is common in the financial market and primarily aims at risk management. By allocating operations into funds, the company can isolate these risks, protecting both the bank and its clients from potential losses. In the specific case of the funds mentioned, it is important to note that they have only one shareholder, meaning that there is no network of new shareholders supporting operations—something typical of pyramid schemes. Therefore, there is no evidence suggesting that XP is operating in an illegal or unsustainable manner.

2. Regulatory and Economic Efficiency

The use of funds also brings regulatory and tax benefits. By structuring operations in this way, financial institutions can save on capital requirements under Basel rules, which mandate that banks hold certain levels of reserves to cover risks. Additionally, fund allocation allows tax deferral, a legal and widely adopted practice in the sector. This is not an irregularity, but rather a resource optimization within the regulatory framework.

3. Results in the Funds, Not the Bank

The Grizzly report seems to confuse the allocation of resources in funds with a supposed pyramid scheme. In reality, the results of operations are reflected in the funds, not directly in the bank’s balance sheet. This means that gains and losses are reflected in clients' investments, not in XP’s structure. This separation is crucial for understanding that the company is not "hiding" results or creating an unsustainable structure. Moreover, as mentioned, the funds have only one shareholder, which prevents any association with fraudulent models that depend on a continuous flow of new investors to sustain operations.

4. Market Maker Role

In many markets, XP acts as a market maker, meaning it intermediates by providing liquidity to the market. This means that in various situations, XP buys and sells assets to ensure market stability and that investors can execute trades easily. This role is fundamental to the proper functioning of the market and has nothing to do with fraudulent schemes. The fact that XP operates as a market maker in certain markets further solidifies its position as a solid and regulated financial institution that follows industry practices.

5. Transparency and Regulation

XP operates in one of the most regulated markets in the world, subject to oversight by entities like the Securities and Exchange Commission (CVM) and the Central Bank of Brazil. Any irregular practices would quickly be identified and penalized. The company also maintains a high level of transparency in its financial reports, allowing investors and analysts to closely monitor its operations. This demonstrates that the company’s structure complies with industry standards and does not present the risks associated with fraudulent schemes.

6. Sustainable Growth and Stability

XP has shown consistent and solid growth over the years, based on a real expansion of its client base and a diversified range of financial products. The company does not rely on an unsustainable model but rather on a clear and well-executed strategy for customer acquisition and retention, coupled with efficient risk management.

Considerations on Immoral Recommendations

It is important to highlight that, while XP operates within the norms and regulations of the financial sector, this does not exclude the fact that some of its advisors have made immoral recommendations, such as promoting financial products like COEs (Structured Investment Certificates). These recommendations can be considered immoral, especially given the conflict of interest involved in recommending products to clients. However, it is essential to understand that what is immoral is not necessarily a crime. The debate here should focus on the unfounded accusations about the structure of the company, which do not stand up to scrutiny based on the facts presented.

Conclusion

The Grizzly Research report on XP seems to overlook common and widely accepted practices in the financial sector, such as using funds for risk management and tax optimization. XP’s structure does not resemble a pyramid, but rather a robust and regulated business model that has allowed the company to grow sustainably.

Investors and analysts should approach such criticisms with caution, always seeking to understand the context and practices of the sector before jumping to conclusions. XP continues to be one of the most innovative and stable companies in the Brazilian financial market, and its business model is far from what the Grizzly report attempts to portray.

What do you think of this analysis? Do you believe XP is being unfairly criticized? Share your thoughts!