Latin America is one of the regions with the highest expected growth rates of wealthy individuals as its HNWIs are, on average, wealthier than those in other parts of the world.
According to Swiss bank Julius Baer’s first ever ‘Industry Report Latin America’, the wealthy in Latin American have on average $13.5 million in investable wealth, which is considerably higher than HNWIs in Africa($8.9m), Middle East ($3.8m) North America ($3.5) and Europe ($3.3m).
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The number of ultra high net worth individuals (UHNWI) is also expected to grow by 42% to 13,711 until 2023.
Growing at a strong pace, the region has almost tripled its gross domestic product (GDP) since 2002, allowing for sustained periods of political stability, said Julius Baer’s report.
External debt declined since 2002 from 42% to 25% of GDP, resulting in institutional and socio-economic changes, Julius Baer found.
In Brazil, for instance, the demand for cars surged from 1.7m units in 2005 to 3.8m units in 2012, with the rise of the middle class continuing to shape Latin America’s economic structure.
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By GlobalDataIn terms of AuM growth, Latin America posts the best average for the six-year period from 2008 to 2013 with 12 %. It was the only region that did not post a single negative year, Julius Baer also reported.
According to data from McKinsey for 2012, private banks actively serving Latin America clients, whether onshore or offshore, had a total of $2.66 trillion in AuM from that region. That sum was dominated by Brazil with 42% (AuM of $1.1trn) and Mexico with 25% (AuM of $651bn).
Additionally, the Latin American wealth management industry servicing this clientele is changing, Julius Baer indicated.
"As these changes deepen and further unfold, we feel that one segment of the wealth management landscape with much potential is what is commonly referred to as external asset managers (EAM)," the bank said.
EAMs have been on the rise in Latin America, both onshore and offshore, the report said.
Julius Baer’s research found that in an increasingly stable environment, there is a growing desire of Latin American HNWIs to have local and closely held wealth management relationships, on both onshore and offshore assets.
However, the EAM sector remains a nascent segment and is considered ‘less safe’ by HNWIs when compared to big banks’s services.
Analysing HNWIs investment preferences, Julius Baer said though Latin American investors have become younger and more sophisticated over the past decades, cash, fixed income and real estate investments still represent 76% of the average Latin American asset allocation.
As of Q1 2013, 76 % of the wealth in Latin America was invested locally: by the end of Q1 2014, that percentage had decreased to 67 %. That allocation preference largely moved towards North America and Europe (Switzerland).
Also, the financial centres in the Caribbean, Panama or Uruguay were among the most preferred as investments’ destinations. Boston Consulting Group’s analysis for year-end 2011 suggested that Switzerland as well as the Caribbean and Panama had a 29% share of Latin America offshore assets, followed by the US with 28%, while the remaining 14% was divided among various other locations.
