Two Latin American selectors share their experiences with international asset managers and reveal the common misconceptions and mistakes they make when targeting this region’s investor community.
Angela Maria Fina
One easily avoidable mistake that asset managers make when visiting Latin America is to assume they are the only big asset manager visiting the area.
Another is to assume that institutional and retail investors have the same appetite for certain investment themes or to misjudge the differences within different countries and investor communities in the region.
Initially, when entering the Latin American market, a common misconception many asset managers made was to underestimate the level of professionalism and sophistication of the market, but nowadays that is less common. In terms of their products, we tend to target funds with a minimum assets under management of $100 million that also have a manager with a decent track record.
One common example of a problem we’ve come across is asset managers coming to our market rather unprepared and bringing with them emerging market funds where their coverage of Latin American companies is not up to scratch.
Besides being fund selectors, we also have expertise in this asset class as an asset manager, so we are very demanding when it comes to these funds’ coverage of Latin American companies. In some cases they will have a couple of research analysts covering the region from London or New York, and we feel that this is usually not enough to really understand the countries and companies.
Latin American assets can be very volatile so for us deep coverage and onsite analysts is important. When we find a fund house whose investment process and team don’t reflect this, it raises doubts on the other regions they cover as well.
HSBC Bank (Uruguay)
There are some basic things that many asset managers get wrong when they enter the Latin American market but the main mistake is not speaking Spanish, whether it’s on the sales team or the portfolio managers, or failing to have material in Spanish.
For Latin Americans investors the relationship with the fund provider is really important so groups that have a representative or sales person who is in Montevideo or in Santiago are going to have more success than ones that come down from New York every three months.
Thirdly, if they come into the region with a product that technically is good, which has had great success in the US and Europe, but returns 1% then it will be really hard for them to try and use it for income. They are used to their local bonds – Uruguayan rates are 4.5% to 5%, Brazilian are a bit more and Argentinian are even higher.
Particularly if they are not a sophisticated investor, it’s very hard for them to go for an investment that doesn’t have an appetizing return – even if it manages risk well.
We’d like to see more collaboration between asset managers to bring forward more streamlined asset classes. Often they come to us with an A-share class, a C, E and an F, and it is different from one manager to the next. Also, if we’re going to invest in, for example, a European equity fund, having a hedged share class is really important.
The first thing I do when a manager requests a meeting is to see whether the fund family is approved at the global level by HSBC. If it’s not approved in London it’s really hard for us to get them on the platform. Someone recently presented me a robotics fund with an incredible story to tell the client. However, I had to turn them away because we don’t have a relationship with that fund family at the moment.
There are a lot of asset managers now coming to the region. I’ve noticed a lot more calls requesting meetings than I did five years ago.
Initially, we valued a manager who had a regional footprint but this is no longer a differentiator.
All the big fund houses have a local or regional footprint, and hearing that over and over again gets a bit boring. They need to evaluate and show the value they’re bringing, that’s what we want to know.
This article was initially published in the April edition of Citywire Americas.