Latin America becoming an investment powerhouse

By Michael Sanders and Alexander Ortiz

The spotlight will be on Brazil and Latin America over the coming years, but not just in a sporting sense.

There is growing interest from around the world to invest in Latin America, coupled with a significant level of domestic capital looking for global asset managers. As a result, we expect that the wider region will continue to evolve into a strategic marketplace for money management.

The Latin American asset management industry is already ranked sixth in the world with an estimated USD1.5trn assets under management, up from USD0.3trn in 2002¹. Forecasts by the UN Economic Commission show that Latin-American economic development will be the highest of all global regions during 2014.

A confluence of macro-economic trends

A burgeoning middle class, supportive population dynamics, the increasing maturity of economic and political structures and the formation of new economic blocs like the Pacific Alliance, are driving worldwide interest in Latin America. In addition, as the five major economies of Brazil, Mexico, Chile, Colombia and Peru look to accelerate their growth story, the creditworthiness of the region has improved.

Opportunities for fund managers to expand in Latin America 

A recent report² reveals that 57% of global investors believe that Latin America presents more attractive investment opportunities than other emerging markets. Brazil is considered the most prominent destination for Latin America-focused investment, ahead of Colombia, Mexico and Peru.

Concurrently, as the region becomes increasingly active, investors from Latin America are also looking for new global strategies. High net worth individuals (HNWIs) in Latin America are estimated to invest one-third of their portfolio outside their home market, which will only increase the potential for foreign asset managers seeking to launch their products in this region. HNWIs are particularly interested in cash or cash equivalents (29%) followed by real estate (28%), fixed income (20%), equities (12%), and alternative investments (12%), with most (22%) of their alternative investments being in private equity³.

Importantly, investors are looking for trusted and secure global managers, who they can engage with directly. In line with this, important factors for managers entering the region are:

– Launching strategies that are attractive to the individual markets
– Establishing strategic distribution relationships
– Ensuring a local presence and long-term commitment to the region

Luxembourg UCITS – the vehicle of choice

UCITS made in Luxembourg are a widely accepted investment for institutional investors, including pension funds, banks, and broker dealers in Latin America.  We are already seeing local pension funds in Chile and Peru, as well as Colombia, which are keen to invest in UCITS. Chilean pension funds manage over USD170bn, taking advantage of their foreign investment quota, which has raised nearly 80% to invest in Luxembourg UCITS. At the end of 2013, 1.466 Luxembourg UCITS were registered in Chile and 767 in Peru. The preference for Luxembourg UCITS is supported by the regulatory environments in the region which restrict mandatory pension schemes to investing in funds that are deemed the safest.

Latin American asset managers are also launching UCITS funds to broaden their investor base. Independent asset managers in particular are looking to launch UCITS-compliant versions of their strategies to attract investors from Continental Europe. Whereas big market players tend to use their established relationships with the big investment banking platforms, smaller and middle size managers often seek independent partners and platforms.

As the world looks to invest in Latin America, it is important to remember that substantial growth differences between the countries still remain. Many international firms are enthusiastic about expansion into Latin America, but local knowledge of the markets and potential customers is essential to future success.

Michael Sanders is CEO and chairman of the board of Alceda Fund Management and Alexander Ortiz is founder and CIO, AFINA International Advisors.  

1. The Boston Consulting Group Global Asset Management Benchmarking Database 2013
2. Preqin (2013). Latin America Investor Survey; Luxembourg for Finance.
3. The Global High Net Worth Insights Survey 2014* from Capgemini, RBC Asset Management, and Scorpio Partnership queried more than 4,500 HNWIs across 23 major wealth markets in North America, Latin America, Europe, Asia-Pacific, the Middle East, and Africa.