December-January 2016


Carlos Samaniego is the assistant vice-president at Banco General Valores in Panama. As part of our Investec Global Distributor Insight series, in association with Investec Asset Management, he speaks to Funds Europe about Central American distribution. How has the investor landscape changed over the past five years in Latin America? Within Central America and markets like Panama and Colombia, the biggest change is that local players, both investors and investment managers, are much more open to international investments. Previously there was a heavy home bias and after the financial crisis, investors were uneasy about investing abroad. But by 2009 and 2010, they started to see more opportunities beyond their borders. Specifically, most of our clients are still looking regionally, in the US and other Latin American markets. Some are looking at Europe, fewer are looking at Asia or MENA [Middle East and North Africa].   What are some of the distribution challenges in
Latin America?
As a broker, we do business with everybody. Our ambition would be to focus on one or two layers where we can have a mutual relationship between the distributor and the promoter. For example, we could have an arrangement to distribute a good mutual fund, but the same fund could be distributed by anyone. Without any kind of exclusivity, it makes it difficult to have any new ideas for distribution. In some sense, the market has naturally arrived at this point. Years ago, I could sell any fund to a client without them knowing the original fund promoter. I’m not asking for exclusivity but for meaningful partnerships. For example, we have worked with competitors and it has gone well.  Is there an effective cross-border market in Latin America? It is not easy to market funds on a cross-border basis. Each country in Central America has its own securities challenges. For example, it is not possible to sell a fund to Guatemala directly from Panama. But not every country is on the same regulatory level. For example, Costa Rica is not that open to other regions. Similarly in El Salvador, you have to be in the region to sell a fund and it can take years to get the necessary regulatory approval. In Panama, you still have to be present in the country but it is a more accessible market and you just need a simple notification process rather than needing full regulatory approval.  What are some of the regulatory challenges you face? Regulation is the single biggest challenge facing the industry, particularly the US and the likes of FATCA [Foreign Account Tax Compliance Act] and meeting the obligations of a ‘qualified intermediary’ for the US market. Then there are the local regulations you have to live with. The fund distributor has also faced challenges from the indirect impact of regulations affecting other intermediaries. Not only is there more due diligence from investors, the transfer agents require much more paperwork from distributors. We keep needing to update the distribution agreement so many times it is incredible.  There are generally two types of account options – the omnibus and the fully disclosed – but we have seen such an increase in the disclosure requirements from transfer agents (TAs) about the investors. There are strict banking secrecy laws in Panama and that means that we have go to each of our clients and ask them for a waiver. I have never asked clients for this before, so there is the risk that they will simply ask us to redeem their interest in the fund and go for another one. We are seeing these requests mostly from the TAs in Luxembourg and Ireland. We have over 3,500 clients, so it takes a lot of time and work for fund administrators and distributors to go to each of them with these requests. Has your business model changed as a result of any of the pressures described above? I think in time it will become inevitable that these requests will be extended to all TAs and all funds and we will have to change our distribution model. Each time you do that, you have to contact the client and it is all over details that have nothing to do with the actual investment.  What does your firm do differently to your competitors? My role is a product specialist so I decide what our independent financial advisers (IFAs) show to our clients. We do our homework and we do our due diligence with the funds we select. Even though we have a relationship with a wide range of fund promoters, we do not show all of these funds to all of our clients. It is about knowing exactly what the fund is all about – the BPMs, the risk return, the track record, the underlying companies and instruments. I think that is what makes us different as opposed to the distributors that let the IFAs decide what they show to their clients. We think it is a more conservative approach but one that does not rely on unsolicited sales pitches. Of course, if a client wants to make a specific investment in a certain fund, we will facilitate that, but we will not do it on an unsolicited basis. We think that because we do our homework, we are saving time for our clients.  What do you think will be the biggest challenge for the industry in the next five years? Managers have had a tough time in the last five years. It has been a challenge for them to create alpha. That is what investors pay them for but very few have beaten the benchmark. The other challenge for managers has been the struggle to find a niche. They may have a mutual fund with a good, high yield but so does every other fund promoter. They need to offer something different for distributors that will benefit them all.  The big challenge going forward will be the issue of commission payments and rebates. In the UK, there is a ban on rebates. It would be very tough for the Latin American market to adopt that because no one is used to it. For that to work, brokers would need to charge based on the assets under management. It makes sense for brokers to pay distributors based on their holdings. We try to have the cheapest asset classes and a fair trailer but any new rules on removing rebates could be a game-changer and a huge challenge for Latin America. fe

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