The top opportunities today in the growing Latin American wealth management market are in Colombia and Peru, says Santiago Ulloa, president of GenSpring Family Offices International, a firm with big plans for the family office market in the continent.

The top opportunities today in the growing Latin American wealth management market are in Colombia and Peru, says Santiago Ulloa, president of GenSpring Family Offices International, a firm with big plans for the family office market in the continent.

And as firms grapple to grow their share of the market, competition will undoubtedly intensify, but that’s no bad thing because it just means the industry is expanding, says Ulloa.  

All the buzz around Latin America in the wealth industry comes down to the fact that there is a growing middle class in the continent, he explains, because these people are buying products and services and driving business growth, which is bolstering the fortunes of the continent’s entrepreneurs.

“The last 10 years has really been a positive time for Latin American countries in general; it has been a time of growth with some very interesting policy development, mainly in Brazil and in Colombia and Peru, really to transform the population as a whole from total poverty to a middle class,” says Ulloa, speaking to Family Wealth Report.

“I think for everyone this developing middle class is very important… most of our clients are entrepreneurs and have local businesses,” he adds, saying that the number of UHNW individuals has been growing, as well as getting richer. “It’s positive for everyone.”

The latest figures put the HNW population in Latin America at around 0.5 million, according to the Merrill Lynch/Capgemini World Wealth Report 2011. Within this though, the unusually high proportion of ultra-wealthy individuals – at around 2.4 per cent compared to a global average of 0.9 per cent – means total wealth stood at around $7.3 trillion in 2010.

Where are the big opportunities?

“For me the best opportunities of today and the countries that will be growing most in the next 10 to 20 years are Colombia and Peru. In both cases they are coming from very low ratios and they have been able to cut the poverty more than 20 per cent in the last 15 years, so that is impressive,” says Ulloa.

Ulloa notes that the underground economies in these countries are formalizing: “In the past there used to be a [large] underground economy…but now this population is starting to pay taxes too, so for example if you look at the ratio of debt in Peru [it is] the lowest in the whole area, meaning this segment of the population is starting to emerge for the first time in the financial market - asking for loans, for credit, etc.”

Indeed, public debt in Peru was estimated at around 21.9 per cent of GDP in 2011, according to the CIA, as GDP grew by an estimated 7 per cent over the year, down from 9 per cent in 2010.

A number of local and international firms have been hiring for this market already in 2012: BNY Mellon has made a senior hire to increase its coverage of the region; RBC has just bought a Latin American wealth business from a UK firm, as well as hiring Rodrigo Buller Souto to oversee growth in select LatAm markets; the large tax network Baker Tilly added a firm in El Salvador to its network.

Meanwhile, Itaú Private Bank International, part of Brazil's Itaú Unibanco, appointed Frances Aldrich Sevilla-Sacasa as chief executive to spearhead the private bank’s expansion plans in Latin America outside of Brazil from a base in Miami, FL.

For international firms looking to the market, “in order to do business in Latin America I think it’s mandatory to understand Latin America,” says Ulloa, “and understanding… is being able to invest locally, because the best opportunities in the last years have been in the local markets.”

This knowledge is something Ulloa can claim, having overseen all private banking operations at Banco Bilbao Vizcaya before joining GenSpring.

“For example if you deal with Brazilians you have to understand that they invest 70-80 per cent of their money in Brazilian products, locally. It could be through an offshore account… but they invest very much in the local Brazilian markets,” he says.

He adds that it’s a similar picture in other Latin American markets, as in places like Colombia, Peru, Chile and Mexico the markets have been going up significantly, “so you really need to be able to invest in those markets.”

“At the same time the world is global today and the local people also understand they need to invest abroad- they want to invest in the US, in oil, in gold, etc. Everything goes to a global market so there is a need to invest both globally and locally,” adds Ulloa.

The client base

At the moment, GenSpring’s international client base - that is non-US citizens and non-US residents - makes up around 20 per cent of its total client-base, and the firm has clients in 20 countries, predominantly in Latin America and Southern Europe.

So far, though, it has offices solely in the US. "In Latin America, we have decided to remain based in the US because in Latin America, there are many concerns around confidentiality. Most of the ultra-high net worth [clients] really don’t want to share their information locally because of the security risks involved,” says Ulloa.

Many firms direct their Latin American businesses from Miami, FL, where Ulloa is also based. 

Political risk

The political risk picture is changing though – in some cases for the better and some for the worse, says Ulloa, citing Venezuela and Argentina as two places where political risk has been on the rise. "[In Venezuela] nationalizations have been underway and private property has been at risk…there is a chance there will be a change of government in the future so there is a lot of uncertainty – the people don’t know what will happen,” says Ulloa.

The Argentine government’s recently announced plan to nationalize 51 per cent of the oil firm YPF will also worry investors in that country.

“On the other hand, many people are returning money to Brazil…to Mexico, to Central America, to Colombia, to Peru to Chile… so there needs to be great distinction between some places and others,” says Ulloa.

Demand for services

One of the most in-demand services is an overall asset allocation, as clients want to balance national and international investments, as well as asset classes, in terms of risk. GenSpring also provides a manager selection service for Latin American clients. It also sees a big opportunity in helping clients with cost structures, leveraging scale to get better deals on fees.

Another important area for Latin American clients is legal structures, says Ulloa, as many HNW individuals have dual citizenship and reside part-time in the US or Europe, or have family members spread out in these countries.

“Clients with assets in multiple jurisdictions not only need to understand the legal and tax obligations they have, but also need to create the proper structures to deal with them,” he says. On this front, the firm works with both internal and external advisors.

“Even though our international advisors are very knowledgeable, we understand that we will not know every tax regulation and legal constraint for every country, so we always try to seek local advice… usually by trying to work with the family advisor, or with the local attorneys or local accountants… and then overseeing or managing that process with our own advisors to ensure that everyone is working in tandem towards the best interests of the client families,” says Ulloa.

Ulloa says the family office offering is still not well understood in Latin America.

“The family office industry in Latin America is still not well known at all… we have been advising clients there for more than 12 years…but 12 years ago when we spoke about a ‘family office’ no one had a clue what we were talking about.  Only recently has there been limited media exposure, so now people are starting to understand this model of wealth management - but it is still very new,” he says.

He thinks there’s plenty of scope for the model though as he sees “a total lack of trust [towards]  the financial institutions” there.

“It doesn’t mean that it will not grow. I really think the opportunity in the international arena is much bigger than in the US or in Europe today. Why? Because…the offshore banks have been charging much more to their internationally based clients than in their domestic markets [US/Europe]. So the profits have been much bigger, the fees have been much bigger and there is room, a lot of room, to reduce that on behalf of the clients.”

He knows the market will get increasingly competitive in the years to come, but he views the firm’s scale – with around $20 billion in liquid assets – and independence in terms of products as its biggest ace cards, as it will use this to try and drive down fees for the best quality products, he says.

“You need to provide service at the right price for your clients, and in order to do that you need enough clients and enough assets under management to access the best investment opportunities for them. Right now we are the market leader but we know that the industry is growing and many more players are testing the waters but we are happy with that, because… it means our industry is growing and that is a good thing. ”