Asset Managers eye Latin America’s middle class for growth

Raman Aylur Subramanian, Ned Burmeister, Lucas Ramirez and Manuel E. Mejía-Aoun talked about opportunities and challenges in Latin America.

By Yimian Wu

Asset managers operating in Latin America hope to claim a bigger share of the growing mutual fund market, currently dominated by local banks, with more sophisticated equity products, said fund managers in the annual conference of the Chartered Financial Analyst (CFA) Society Chicago on Thursday.

Mutual funds operated by the local banks invest primarily in fixed income securities and local markets, conference participants said, so people in the emerging middle class are looking for alternative investments for their retirement funds.

There is significant room for growth in mutual funds in Latin America, said Lucas Ramirez, head of research at Sura Investment Management. According to him, although the region had only 2.5 percent of global assets under management in 2013, growth of managed assets in the past six years has been around 13 percent annually compared to a global average of around 6 percent.

Ramirez said Latin America started to implement mandatory defined contribution plans, similar to 401(k) plans in the United States, about 30 years ago. Today, ten countries have adopted these plans and total assets under management exceed $100 billion.

However, penetration of mutual funds is low in the region, Ramirez stated. “You don’t find Latin American mutual fund-based companies like Blackrock, Fidelity and Vanguard. It is an industry that is dominated by the banks and by the brokers just because they have the customers and the distribution channels, therefore they create asset management subsidiaries just as an add-on products,” he said.

He also noted that the assets are “conservatively managed” so that, among different countries, fixed income accounted for 75 to 87 percent of total mutual fund investments and local exposure ranged from 77 to 100 percent.

Ned Burmeister, senior vice president of Principal Financial Group, aims at transitioning the middle class investors “from savers with bank-offered products, fixed-income products, to more mutual funds, solution-based products and participating in the capital markets.”

Burmeister also said that the defined-contribution programs will not provide adequate income for a comfortable retirement life and therefore his company is trying to shift people from mandatory programs to voluntary plans with more flexibility.

He also noted a trend of declining rates of return on fixed income investments in Latin America, saying “it is driving the necessity for participation in the equity market and participation in the solution-based mutual funds.”

Manuel E. Mejia-Aoun, founder of Alpha4X Asset Management, declared that technology helps form a “global middle class affluent society” in which investors from different countries can share information and educate each other to become more mature investors.

Photo at top: Raman Aylur Subramanian, Ned Burmeister, Lucas Ramirez and Manuel E. Mejía-Aoun talked about asset-management opportunities and challenges in Latin America. (Yimian Wu/Medill)