REGIONAL REPORT
(political risk). I do not think that they are willing to allow more FX appreciation.”
Institutional investors
Controls and interventions are a fact of currency investing life in Latin America but they have not deterred foreign investors. Local investors have long experience of living with them but the main issues that concern them are rather different.
“With the ongoing deterioration in the global growth backdrop and the renewed outlook for low yields
7KH ÀUVW LV WKDW SHQVLRQ IXQGV LQVXUDQFH companies, sovereign wealth funds and RWKHU LQVWLWXWLRQDO LQYHVWRUV DUH ÁXVK with funds and need to invest. Yet the investment choices facing them are limited within their own countries, say in Chile for its pension funds for example, but also in Latin America as a whole.
in the developed world, pressure
for appreciation in LATAM currencies has increased,”
DAVID BEKER
“Pension funds in the region are growing at a very fast pace,” says David Beker of Bank of America 0HUULOO /\QFK 5HVHDUFK FDUULHG RXW E\ KLV ÀUP forecast domestic Latin American institutional assets to reach US$3.3 trillion by 2015. The bulk of this LQYHVWPHQW E\ SHQVLRQ IXQGV DQG PXWXDO IXQGV ÀQGV LWV ZD\ LQWR HTXLWLHV DQG À[HG LQFRPH ´7KH SUREOHP that they face is that their investment universe is pretty small. That is particularly the case for Chile, &RORPELD DQG 3HUX 6R WKH\ QHHG WR ÀQG DOWHUQDWLYHV
DQG ZH·YH VHHQ LQYHVWPHQW ÁRZV PRYLQJ IURP RQH Latin American country to another. This is a relatively recent trend that has been happening only over the last three or four years.”
“These markets are going to develop and have different
regimes, and central banks will be using currencies as a
policy control tool for macro economic management and this will create
opportunity in Latin America.”
At the same time however pension funds in particular are faced with serious constraints on what they can invest in. For example as Ismael Perez of Montevideo– based Aqua Advisors notes, Peruvian funds, which are growing rapidly, are not allowed to invest in any strategy involving the use of derivatives. For Colombian pension funds a capital warranty needs to be in place. Brazilian funds are restricted as to the amount they can invest outside the country. In general, pension funds in Latin America as elsewhere; tend to be conservative in their investment tastes. Yet they are in search of yield and have begun to look at alternative asset classes, such as private equity, real estate and currency funds.
“Institutions are looking for a mix,” says FX Concepts’ Maximilian Spiess. “There is a lot of request for the traditional hedging mechanism but more people realise that currency is an asset class and can actually produce alpha. And also as a consequence of 2008, they say “if equities RU À[HG LQFRPH GR QRW DFKLHYH GHVLUHG
COLIN HARTE
performance I better look around for something else.” We have seen more interest because investors have been searching for new areas to allocate their money.”
Autumn 2011 | Currency Investor 79
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