|The Bahamas Investor Magazine
January 1, 2017
January 1, 2017
Although there has been a slow down in the region over the last year, overall growth in Latin American wealth among high-net-worth individuals (HNWIs) has been phenomenal in recent times. Industry stakeholders have been keen to capitalize on this burgeoning market, as well as tapping into the deep reserves of old family money. The Bahamas has been among those jurisdictions looking to gain a foothold.
According to the Capgemini World Wealth Report 2016, HNWI population in Latin America stands at around 0.52 million with combined wealth of $7.4 trillion, ranking it fifth in the world for HNWI population and fourth in terms of HNWI wealth. Julius Baer’s most recent industry report on the region suggests that the average investable assets of Latin American HNWIs is $13.5 million –roughly four times more than in Europe or North America.
To successfully engage with this market, wealth managers need to have a deep understanding of the high-end socio-economic demographic. Latin American investors have become younger and more sophisticated over the past decades, resulting in an increasing risk appetite and a more diversified portfolio to achieve investment objectives, according to the Julius Baer report. “Latin American economies, at the same time, are more integrated into the global economy today than ever before and thus more exposed to international economic cycles and global social trends,” it says.
In line with international trends, 37.8 per cent of the HNWIs in Latin America are more focused on wealth growth than on wealth preservation (33.9 per cent), according to the Capgemini report, while 47.1 per cent of the HNWIs in Latin America prefer to work with a single firm, as opposed to 15.2 per cent with multiple firms.
This preference to develop a relationship with one financial services provider presents opportunities to boutique and private banks, as well as family offices. Some private banks with a base in The Bahamas such as Pictet are signalling their continued interest in the region. “The Latin American market is one of the fastest growing in the world,” says managing director of Pictet Bank and Trust Ltd Bahamas Grégoire Pictet. “You have a lot of newly wealthy and they need direction and advice with what to do with that wealth. We can provide a wide range of services for this very dynamic region of the world.”
With total wealth in the region set to continue to grow, heightened exposure to external shocks and increased investor sophistication will also lead to new investment behaviours beneficial to wealth managers. “The growing middle classes are forced to think beyond their immediate consumption needs and to re-evaluate notions of saving, wealth protection, investment preferences and allocations, while considering systematic risks amongst others,” says the Julius Baer industry report.
As LatAm investors continue to become more sophisticated in their needs and their domestic circumstances become more complex, The Bahamas remains an attractive option.
“While many countries in Latin America have achieved greater levels of political and economic stability, diversification is still an important goal for many investors,” said Aliya Allen while on a trip to Latin America during her tenure as Bahamas Financial Services Board (BFSB) chief executive officer. “Historic levels of inflation in many countries, and the fact that appropriation of property is still a very real concern, ensure that this will remain a priority. Access to capital markets and to investments outside of one’s home country will continue to drive the increasingly sophisticated LatAm investor. The Bahamas provides a key platform in its well-regulated investment funds offering for facilitating this kind of investment.”
There are the obvious benefits, such as proximity, a stable regulatory environment and property investment to name but a few, but The Bahamas has also been extremely nimble in creating products tailor-made to the Latin American markets. The Bahamas’ real strength is its legislative framework, which allows the formation of certain financial instruments, such as hedge funds, equity funds and SMART funds, that are particularly attractive to the growing number of HNWIs in Latin America. Among LatAm’s wealthy, hedge funds have traditionally dominated alternative investment holdings and accounted for 35 per cent of all such holdings in 2010.
Michelle Neville-Clarke, partner with Lennox Paton in the law firm’s banking and finance, corporate and commercial, investment funds, and private client groups, says that opportunities in fund management from Latin America are on the rise, particularly using the flexible SMART Fund model. “It has become apparent, over the last few years, that there was less and less interest in the boilerplate type of Standard Fund. People have begun to tailor-make their funds. Investors have started seeking out products to suit their private arrangements, but they still want them in a supervised environment. More and more you hear wealth managers who deal with Latin American clients saying that the one-size-fits-all solution does not suit them; they want something that is tailored to meet their needs.”
Another innovation is the Bahamas Investment Condominium (ICON). The Bahamas ICON provides an alternative legal structure for investment funds; one that is inherently familiar to those used in Brazil and indeed those in used countries that have similar civil law constructs. While designed to be eflective of Brazilian requirements, and consequently intended to target fund-familiar investors looking to diversify away from their domestic market, the ICON is not solely focused on Brazil. The Bahamas is also seeing considerable interest in the fund from other LatAm countries.
Products such as these have been created and developed through extensive synergy between politicians, lawyers and other stakeholders in the financial services sector and are indicative of the highly collaborative approach to product development employed by The Bahamas. “As we move forward to build on what we have already established through our SMART funds and our recently introduced ICON, we will continue to focus our efforts on innovation and creating products and services that offer the best opportunities for the Latin American market,” says Financial Services Minister Hope Strachan.
Although the brand recognition of The Bahamas is gaining momentum in LatAm markets, there is still a lot of work to do in keeping The Bahamas uppermost in investors’ minds in an already crowded and complex marketplace. As well as local competitors, which are constantly improving the quality and depth of their services, US providers also have a strong foothold in the region. Many wealthy Latin American families have strong ties with the US through family, property or investments, so banking with US firms such as JP Morgan Private Bank or Morgan Stanley, is commonplace.
To gain more traction, industry stakeholders are making forays into major markets such as Brazil, Mexico and Argentina with targeted trade missions and attendance at key events. In recent years, The Bahamas’ financial services industry has been represented at Society of Trust and Estate Practitioners LatAm conferences and private wealth management forums across the region, as well as holding seminars and meetings with intermediaries. “We need to be visible and we need to be present to make sure The Bahamas is on everyone’s mind. It is about business development and awareness,” says BFSB chief executive officer Tanya McCartney. “The possibilities in Latin America are endless.”