Tuesday, June 12, 2012

Offshore choices for Latin American investors

Small world
8 Jul 2011
 
The scramble for yield and return has sent investors scouring the globe in the post-credit crisis environment. Although still unprepared to invest too far from the beaten track, improved liquidity in markets like Latam has meant there is real opportunity for investors to reduce their risk profile through allocations to emerging markets. 
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Latam investor base
The message appears to be that there is little let up in the demand for Ucits structures among investors who crave onshore structures, particularly in the absolute return format, but clearly that isn’t for everyone. In Brazil the opposite can be said. The market is currently awash with financial products and investors aren’t desperate for the security offered by Ucits, particularly in an absolute return fund.
“Things are going well in the real economy. When you analyse the risk assets, like the Bovespa, then there are certainly some problems but it’s because investors are wary of putting their money to work at the moment,” says Otavio de Magalhães Coutinho Vieira, director of investments Safdie Private Bank based in Sao Paolo. “This is because there are so many IPOs and financial products coming to the market. It’s a type of digestion the market is going through, and I believe that it will pass through a period of ups and downs and there won’t be too much definition for the markets.”
The ‘multimercados’ make up the majority of the market, regulated onshore products, whereas traditional hedge funds are set up as offshore vehicles attracting a different  client base. There’s no real rush by local institutional investors to invest in Ucits-wrapped funds, even hedge funds. “There is no rush. The majority of the investors here, the big endowments and the pension funds, prefer to go down the managed account route,” says Vieira. “And the ones that are launching these structures are the big banks so it depends more on the size and the objectives of the manager.
“Independent managers need to have some control over their client base so naturally prefer pension and endowments, which are longer term investors than the retail investors. In general these retail investors want to have a very liquid strategy and these independent guys are more dedicated to mid-caps and even small-caps, and they want a long term-oriented client base.”
A survey completed by KPMG released in early June indicated that the appetite for Ucits was still strong but that the wholesale shift to Ucits [Undertakings for Collective Investment in Transferable Securities] products hadn’t quite happened as many expected. In a lot of cases hedge fund managers opted to keep an offshore vehicle while at the same time create an onshore product that appeals to a certain investor base, largely reflecting the mixed attitude of investors.
Pension funds and endowments in places like Brazil have yet to come round to Ucits, and may not, although some of the institutional in Peru and Chile are more avid investors in Ucits products. “Here in Latam we didn’t have those problems that a lot of places had in 2008. So if a Latin American investor wants to have an absolute return type of product they’ll go toward a Cayman vehicle [offshore]. It is a different game [in Latin America],” says Vieira.
“For other investors Luxembourg protection matters but for Latam investors you see more plain vanilla type of products with a certain alpha attached. Hedge fund managers are receiving demand for their capacity and their skill at alpha generation and the growth is coming from big institutional investors, so Luxembourg [Ucits] is not an issue for them.”
Full text in http://www.latamfm.com

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