Latin America offers opportunities for investment firms such as Nordea, which is trying to convince pension funds, high-net-worth investors and family offices to invest in global products.
Nordea Investment Funds has traditionally focused on Europe but Christophe Girondel, head of global distribution at the firm, decided two years ago to attempt to expand in Latin America.
The firm’s first target was Chile, which is typically the first port of call for investment houses because of its well-developed pension fund industry. The second target was Brazil, which became appealing to investment firms after a legal change allowed some investors to invest abroad.
“The law changed and allowed for ‘super qualified’ investors, people that have more than a million Brazilian reals ($500,000), to allocate a significant amount of their wealth abroad,” says Girondel.
This opened up a promising market which Girondel and his team are trying to reach. The law change also meant that pension funds, which were not allowed to invest abroad, could invest up to 10% of their assets overseas, another exciting opportunity for companies such as Nordea.
“Pension funds have not made any moves yet, but there is this opportunity and that’s why we are present,” he says. “When they start, we’d like to be there.”
Girondel is based in Luxembourg and runs global fund distribution for Nordea, but travels frequently to Latin America. The firm now benefits from the group representative office in São Paulo staffed by a full-time Brazilian employee dedicated to represent Nordea’s investment management competencies. The firm’s initial start in the country came through a relationship with a large Brazilian bank, Itaú Unibanco. This opened some doors, says Girondel, and helped Nordea understand the market better.
But there have been challenges. Brazil’s interest rate is 12% and the domestic economy is doing well, unlike the debt-stricken European and United States economies. This has made it difficult to tempt Brazilian investors away from local solutions.
Another problem is that investors need to be educated about the benefits of diversifying their portfolios with overseas assets. This is a new and fairly undeveloped market. Many Brazilian investors associate foreign investment with hedge funds and do not realise there is a range of funds, many of them long-only, that can provide foreign exposure.
However, Girondel sees great opportunity despite these challenges, and not only from pension funds and high-net-worth individuals, which were Nordea’s initial targets.
“The biggest thing we are developing is the family offices business,” he says. “Brazil has a huge family office business. Very wealthy families have set up their own investment teams to manage their money.”
He is also hoping that Nordea can expand in Peru and Colombia. These countries have parallels with Chile that are very appealing. “In terms of servicing clients, we believe in being local,” he says. “The next step for us would be to look a bit deeper into Peru and Colombia, which have pension fund systems that are very similar to Chile. They are privatised and compulsory. People have to contribute, which is different to most European countries.”
“They are defined contribution,” he adds. “And most of them like to invest in Ucits products, which is obviously something that is interesting to us.”
Girondel says the experience of developing Nordea’s business in Latin America has offered new insights into the global economy.
“When you are European you tend to believe the world is around Europe and the US,” he says. “Here in Brazil, the world is about emerging markets. The biggest trading partner of Brazil today is China. Brazil’s GDP correlation is much higher with China than with the US, which is a tremendous change compared with five or ten years ago.”
This affects the asset classes that Latin American investors target when they look to invest overseas.
“Chilean pension funds are looking at emerging markets when they invest abroad, much more than the US or Europe. They are looking to emerging market debt and equities. If you don’t have such products, it’s very difficult to enter this market.”
The focus on the fast-growing economies of the world is so intense in Latin America that it can force European visitors, such as Girondel, to see the world in a new light.
“When you come to Latin America, and someone going to China might say the same, you see the world from a different perspective,” he says. “In a way, you see the world of tomorrow. Because if these countries continue like this, they will definitely overtakemost of the European countries.”
2011 funds global