increase in total high net worth wealth in 2007 and is attracting
attention from a burgeoning number of wealth managers. Yet the
region’s wealth management sector remains relatively underdeveloped
compared to other emerging markets. Dan Jones
reports.
High net worth individuals (HNWI) in Latin America now number
400,000 and hold $6.2 trillion in assets, meaning the average
wealthy client in the region holds $15.5 million in liquid assets,
according to the World Wealth Report (WWR).
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Collective wealth last year grew by 20.4 percent – the highest such
figure for any region – and the number of HNWIs rose by 12.2
percent.
Ileana van der Linde, principal at Capgemini in New York,
acknowledges that emerging economies have “begun to get dragged
down” as a result of a lag effect from the financial and economic
problems seen in mature markets, but believes that a “somewhat
slow” recovery will nonetheless materialise from 2009
onwards.
Countries rich in natural resources, such as Venezuela and Brazil,
saw double digit growth in 2007, a fact reflected in HNWI growth
rates. The number of HNWIs in Brazil rose by 23,000 last year
alone, and now stands at 143,000 – making up almost a third of the
entire HNWI population in Latin America.
Latin America
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By GlobalDataMany of the world’s leading private banks have turning their
attentions to the country in 2008, while domestic players such as
Banco Itaú, Bradesco and Opportunity Asset Management are also
ramping up their wealth management targets in order to capitalise
on the boom. UBS, traditionally a fast mover into growth markets,
made its mark in 2006 with the purchase of Brazilian investment
bank Banco Pactual for $2.6 billion.
This rush to capitalise on HNWI growth is being mirrored across the
world, with private banks, universal banks and asset managers alike
seeking to capitalise on emerging wealth. This, according to van
der Linde, has resulted in private banks straining to refine their
service propositions, not least from an IT perspective.
“Many private banks are now using overlay management tools, what
have typically been used by fund managers to look at allocations,”
she says. “They’re using this now on a HNW individual to look at
how they are allocated and to very quickly help with client
reporting and things of that nature”.
Differentiation is not just confined to service capabilities,
however. Van der Linde observes that private banks continue to make
mistakes in their assumptions regarding market
characteristics.
“Many of the US and European firms are saying ‘I must go to Latin
America or Asia’,” Van der Linde explains. “The mistake they make
is thinking what is successful in one market will be a success in
another. There is a ‘let me just get there quickly’
attitude.”
Asset allocation
The discrepancies also extend to asset allocation. Latin American
HNWI exposure to real estate fell dramatically in 2007, making up
just nine percent of a typical asset allocation compared with 29
percent in 2006, a figure in line with global trends identified in
the WWR.
But, as Van der Linde points out, “Latin Americans have the
opposite allocation to almost every other region in terms of real
estate. They have the most in primary property, but very little in
commercial property and REITs (Real Estate Investment
Trusts).”
Fixed income is also likely to remain “a
very strong asset class, something that is much stronger in Latin
America than any other region”. But caution does not stop at
portfolio structure.
“I think most people don’t appreciate to what degree personal
safety plays a factor [for Latin American HNWIs],” adds the
consultant. As a partial result of this sentiment, many wealth
management services for Brazilians are based in the US, with a view
to targeting the travelling client.
“Many feel more comfortable banking away from the area,” Van der
Linde says. “That being said, as more companies make gains and
invest in their own infrastructure, you can’t deny that if a firm
is making a lot of profits, they will bank locally.”
The problems of establishing a greenfield venture may lead more
wealth managers to consider purchasing Latin American players,
analysts suggest. In June, Merrill Lynch acquired Chilean brokerage
Ureta y Bianchi, and pointed to private banking as a particular
focus of interest.
“The acquisition gives us the opportunity to explore different
alternatives to expand our wealth management offering. Chile is one
of the most attractive private banking markets in Latin America,
due to its stable government, prospering local economy and
established capital markets,” said Darcie Burk, managing director
and head of Merrill’s global wealth management business in Latin
America.
Ariel Koch, a senior manager in the private banking practice at
global consultancy Accenture, believes that further acquisitions
are possible in Chile.
“I think that could happen. International players are looking to
enter the onshore business,” he says.
A study of the Chilean private banking market produced by Accenture
in conjunction with the Adolfo Ibanez university and local
investment bank LarrainVial, itself a player in the wealth
management sector, has put the total size of the wealth market in
Chile at $71 billion. This figure has risen by an average annual
rate of nine percent since 2004, yet private banks currently manage
just 43 percent, or $30.3 billion.
“The rest of the wealth is managed by other financial players, both
inside and outside of Chile, such as stock brokerage houses, family
offices and others,” notes Koch.
The study, which differed from the World Wealth Report in that it
also took into account the mass affluent segment (those with at
least $100,000 in liquid financial assets), estimated that such
“wealthy groups” numbered 82,000 in Chile by the end of 2007.
Of this figure, 8,400 are estimated to fall into the HNWI category
as defined by Merrill Lynch and Capgemini.
Over 70 percent of the $71 billion held by wealthy groups in Chile
is thought to be held by these HNWIs, the study advised, reflecting
the consolidation of wealth among higher segments as illustrated in
the Merrill Lynch study.
The mass affluent segment
Yet the mass affluent segment, one that Van der Linde sees as of
increasing interest to private banks in Latin America, has also
grown rapidly in Chile. Mass affluent numbers rose by 30 percent in
2007, according to the Accenture study.
“Several firms that we have encountered are looking at not just the
HNWI but also the mass affluent, where there is anticipated growth,
in order to begin the relationship earlier. Many firms are trying
to bring in more sophisticated products,” Van der Linde says.
Koch, however, cautions against drawing too many assumptions from
wider market surveys.
“The industry and the characteristics of the wealth market are very
particular for each country,” he warns.
Yet trends seen in other markets can be read across to Chile, the
Accenture study acknowledges, particularly concerning the
diversification of wealth. Says Koch: “Today a third of the wealth
in Chile comes from non-traditional sources such as executives and
independent workers.”
Van der Linde remains confident that a slump in the markets will
not have long-lasting repercussions for the wealth industry.
“Latin American economies are now investing in infrastructure
rather than just exports,” she says. “While many still rely heavily
on mature economies for growth, in the past few years some of these
downturns have been shorter because governments have better applied
economic and fiscal policies.”
Were any slump to take a turn for the worse, the preponderance of
wealth accumulated among a relatively small client base within the
region should ensure a steady flow of well-insulated HNWIs for
private banks to target.
“The acquisition of Ureta y Bianchi is consistent with our
long-term strategy of pursuing a broad Latin American business
platform that spans multiple countries, asset classes, industry
sectors and clients,” Merrill Lynch Latin America and Canada
president James Quigley declares.
