Latin America: Niche players thrive in wealth management

By:
Rob Dwyer
Published on:

Proliferation of smaller firms; compliance and risk costs deter internationals.

The large investment and private banks have withdrawn from many small Latin American markets and in their wake there has been a proliferation of niche wealth management boutiques focused on the region’s high net worth individuals.

In Uruguay’s capital Montevideo, one of the region’s leading private banking centres, the number of small-to-medium-sized firms has leapt in recent years. 

"Five years ago there used to be 60 firms like ours, with combined assets under management of $1.2 billion," says Emerson Pieri, regional director of wealth management Latin America for Barings Investments (a Latin America boutique that is not affiliated with the UK firm). "Now there are 210 registered with the central bank managing a combined AuM of $23 billion."

Montevideo’s proximity to Argentina, which has seen many of the richest families sending money abroad for more than a decade as its economy stalled, makes it a private banking hub for the region.

BSI

Swiss bank BSI’s only Latin American office is in Uruguay (it also has a Central American office in Panama) and there have been rumours swirling round the private banking community about who will buy the operation now BTG Pactual is looking to offload a bank it only agreed to acquire in mid-2014 (for $1.7 billion) from Generali.

Credit Suisse has become one of the most-named suitors, although ABN Amro is also believed to be interested, with rumours heightened by the fact that ABN Amro could have money to spend following its 2015 IPO.

Niche players

Miguel Sulichin, Advise
Wealth Management

Banco Safra was also said to be interested in acquiring BSI, but market sources say that it has been put off by the perceived overlap in middle eastern clients with its 2015 acquisition of a majority stake of Swiss bank Sarasin for $1.11 billion.

There are also rumours that the office is putting together a management buy-out.

"The clients reside with the bankers not the bank and there is a lot of uncertainty among both clients and bankers at the moment," says one competitor. However, another thinks this was unlikely before a sale was agreed: "They are going to wait at least to hear what the offer on the table will be," he says.

Miguel Sulichin, CEO and senior investment adviser at Advise Wealth Management, says that in general the large international banks are happy to work with firms like his to lower compliance costs and reputational risks.

Advise works with large retail and investment banks and provides the advisory services, while the international banks provide the custody services. He says this arrangement suits all parties, including the clients.

"The international banks are still cutting back their service to the region, they are travelling less and less," he says. "That’s our advantage – we are very close to the client."

With excitement about the potential in Argentina, some international banks may be expected to seek to build private banking operations in the country. However, this will still be an opportunity for the independents, according to Sulichin.

"Most of the international banks are very concerned about reputational risk; private banking provides 1% of their fees and 99% of the reputation risk," he says. "It is critical to these banks that we are properly regulated – that’s what they care most about."

Advise expanded AuM by 29% in the last year, with two-thirds of that coming from new funds and the rest from organic growth. Sulichin says the organic growth was mainly driven by a strong bet on Argentinean bonds. 

The firm plans to open an office in Miami in April, pending local regulatory approval, to shift the firm’s reliance on clients in the southern part of the north of the region. The US office will cover clients in Venezuela and Mexico.

Barings Investments already has a presence in Miami but recently expanded into Paraguay, a market that Pieri says was under-served.

"Citi and BBVA are present in the retail market in Paraguay but they aren’t active for private banking. They don’t seem to like the risks and focus more on the mass segments," he says.

Paraguay office His firm opened its in November 2015 and already has $100 million in AuM.

Thanks

"Clients thanked us when we arrived – no-one else was doing this," says Pieri, although he says the bank’s success is being copied: "I just spoke to the central bank and they told me they had received five more applications for banking licences," he says.

Barings has a Sao Paulo office to deal with Brazilian clients who want to send money offshore. However, Pieri says the FX volatility is dampening any appetite for investing offshore funds in favour of keeping liquid. 

"We focus on the agribusiness sector and clients want to keep liquidity and there is a lot of interest in buying land and distressed assets when Brazil hits the bottom, we are just not there yet."

Pieri says the onshore competition is just too fierce: "In Brazil they have all the private banks and then the family offices are very sophisticated as well. That’s why we have looked at opportunities like Paraguay, where the competition is much lower."