Santander Asset Management is boosting its Latin American fixed income product range with the launch of an investment grade fund that will eventually be turned into a Ucits vehicle.
Before the end of the year, the Spanish firm is looking to launch a Latin American corporate investment grade bond vehicle domiciled in Chile, the group's head of Latin American fixed income Alfredo Mordezki told Citywire Americas.
Once the fund reaches $100 million in assets, Santander plans to turn it into a Luxembourg-domiciled Ucits strategy and then convert the Chile fund into a feeder strategy.
The Ucits version will be aimed at international investors, such as European insurance companies, said Mordezki (pictured below), a Citywire + rated manager.
His team already runs Latin American investment grade bond mandates for institutional investors and there has been growing demand for a mutual fund-like solution from Chile's AFP pension funds, who do not award mandates but instead use third-party products for their global ex-Chile exposure.
Chilean pension funds run roughly $201 billion in assets and of the five risk-driven portfolios they offer clients, the conservative 'C' portfolio accounts for over 36% of those total assets, according to data from the Chilean pension regulator dated October 31. The riskiest ‘A’ strategy held close to 15%.
‘[In Chile,] it has to do with their own client breakdown, where the conservative part of the assets they run has grown more than the [rest],’ said London-based Mordezki.
Mordezki added the new fund would fit the needs of European insurers because, under a directive called Solvency II, local regulators mandate lower capital requirements on investment grade bond funds than on strategies such as private equity.
Along with his team, Mordezki already runs the Latin American Corporate Bond Fund, a strategy investing across the credit spectrum that received a $74.9 million investment from Chilean pension funds in September, according to data from local firm HMC Capital.
Mordezki, a Santander Latin American fixed income portfolio since 2010, said he’s kept an ‘important overweight’ in Argentina for the past 18 months on the back of regulatory changes in the utility sector and projects to increase energy generation.
However, he has the Colombian banking sector ‘under review.’ While he doesn't expect defaults, he believes it could record a higher increase in non-performing loans than its peers in other countries.
Turning to Mexico, he said the country's economic fundamentals are showing some weakness.
‘That weakness transfers to consumption, and transfers to companies that finance consumption. So we have two sources of vulnerability – one that’s real and showing a weakness in consumption, and there’s also a small drop in remittances, which are important in consumption.
'There’s another one that’s more about expectations, where the doubts surrounding Nafta [North American Free Trade Agreement] somewhat hit expectations for the manufacturing industry,’ he said.