LatAm investors to allocate over $250bn to global securities by 2016, Cerulli finds

Institutional investors in Brazil, Chile, Mexico, Colombia, Peru, and Argentina could potentially triple their allocations to global securities by the end of 2016 to well over $250bn, according to the report ‘Latin American Distribution Dynamics 2012: Exploring Institutional Opportunities for Global Asset Managers’ released today by Cerulli Associates and Latin Asset Management.

Faced with an uncertain global economy, Latin America’s pension funds and mutual funds were forced to take refuge in low-risk domestic fixed income in 2011 and early 2012, halting a positive growth trend for cross-border ETF and mutual-fund providers.

Latin America’s private pension managers have now ever-increasing liberty to invest outside their borders, and are being mandated by government regulators to invest increasing amounts of younger participants’ contributions in equity, in order to put them on track to collect a larger pension at retirement, the report said.

Given the region’s small, illiquid capital markets and dearth of new issues, it’s only natural for the majority of equity flows to head offshore.

The research also pegged total AUM of Latin American-domiciled mutual funds at just over $1 trillion, led by Brazil, and found that both private clients and institutional investors are accounting for bigger and bigger slices of the market: up to 75% in some countries, while retail investors continue to be marginalized.

“This dynamic is fueling demand for sophistication at the asset manager level, and has forced managers to compete more intensely on performance and on price. Regional fund industries are expected to reach US$1.8 trillion in assets by the end of 2016,” the report said.

Throughout the region, Latin American institutional investors have shown growing interest in gaining exposure to foreign markets via passive investments, especially exchange-traded funds.

The flexibility and liquidity of ETFs belonging to providers such as BlackRock, Vanguard, StateStreet, and Van Eck have proven to be welcome traits in light of choppy international markets.

However, in a more stable environment, Cerulli and Latin Asset Management expect allocations to favor active strategies, especially when targeting Asia and Europe.

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