International mutual fund managers will draw significant new investments from Latin American institutional investors over the next five years, says mutual fund research consultancy Cerulli Associates.
This will compensate them for continued weakness in the increasingly competitive private-investor segment, adds Cerulli, in the latest issue of Cross-Border Fund Distribution in Latin America, which will be published by the end of the year.
Cerulli says the report-the product of a joint venture between Cerulli and its strategic partner in Latin America, Latin Asset Management-is the result of global-manufacturer and regional-distributor surveys and interviews. “The feedback from the professionals consulted was crucial to arriving at an estimate of US$40 billion in cross-border-fund assets in the hands of Latin American institutions and residents,” explains the firm.
Cerulli says that institutional assets contribute roughly US$5 billion of this US$40 billion figure, but Cerulli and Latin Asset Management anticipate that Latin American pension funds, mutual funds and insurance firms will allocate more than US$50 billion by the end of 2007 (at current exchange rates) to international mutual funds. A bit less than half of the assets under management are expected to come from Chile’s AFPs, while Mexico’s AFORE pension managers will likely account for 10% of the total.
Cerulli and Latin Asset Management expect institutional investors across the region to be given increasing access to international markets, as lessons learned from Argentina – where pension funds were 80% exposed to government debt when it entered into default – and shrinking local capital markets force a change of thinking among regulators and legislators.
On the private-client side, while global broker dealers and global private banks have captured the most assets, the report found that these segments are paying less attention to mutual funds. Instead they are promoting discretionary management services via wrap programs, and emphasizing hedge funds and principal-protected products in the face of poor equity-market performance. Contrasting troubles in these sectors are steady reliance on funds by commercial banks and increased interest shown by independent advisors, a burgeoning sector in the region.