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Growth in the LatAm Asset & Wealth Management industry has been strong in recent years, with assets growing at a 13% CAGR post Global financial crisis. According to a recent report of PwC Luxembourg, despite global economic uncertainties, as well as rising political and trade tensions, short-term effects will be shrugged off post 2020 and assets (in US dollars) will rise by 2025. In fact, they predict a 12.3% CAGR between 2020 and 2025, with assets reaching above the US$5 trillion mark.
In this context, what are the opportunities and challenges for asset managers?
We have the testimonials of a selection of asset managers with consolidated track record in Latin American markets.
“Historically, Latin America has been one of the regions with the greatest potential for development and investments in the western world, given their similar cultural and legal systems.
If we compare with other geographical areas, Latin America has been one of the regions that has grown the most in terms of venture capital in the last decade and that has quite significant growth expectations, according to all current analysis, for the next ten years.
In the last months, we have seen a lower growth in international trade, the appreciation of the US Dollar and the tightening of global financial conditions, which are some of the factors affecting the economic recovery of the countries in Latin America. Likewise, the political board is changing on important countries towards more interventionist and protectionist governments that must be closely followed.
Due to the clear Hispanic orientation of Octogone Europe’s clients, we are proud to say that we can appreciate the differences between the different markets, as it would be a mistake to classify Latam as a single market without paying attention to the evident gap between all the countries from a political and economic point of view.
Given this global scenario, we have noticed a strong demand for alternative assets, in our case, with projects of creating alternative investment funds (Private Equity) where we work closely with several clients and Partners in Latin America in order to analyze and monitor different opportunities in Real Estate, Infrastructure and Telecommunication sectors.
Luxembourg is the ideal place to structure and consolidate these investments towards Latin America, as it is the largest investment fund center in Europe, with more than 6 trillion euros in assets under management. Being leader in the development of private equity investment vehicles such as RAIF, SICAR or SIF, and a very attractive regulatory and tax framework.
We have been able to advise and follow up on the creation and management of several RAIF funds so that our clients and partners feel safe and protected about the way their investments in the Latin American market will be structured.”
“Luxembourg stands as the second largest invest fund center worldwide. Its prime location at the heart of the European Union, its diverse fund structuring toolbox, its attractive legislative and tax framework, and its unmatched experience in global distribution, sustained the success of Luxembourg as the perfect gateway for Latin American (LATAM) clients to conduct their operations in the European and international markets through Luxembourg investment funds.
It is expected that the commercial trade and exchange between Luxembourg and LATAM jurisdictions will continue to grow in the coming years. Luxembourg has a wide network of double tax treaties in force including treaties with Argentina, Brazil, Mexico, Panama and Uruguay. Certain tax treaties (including one with Colombia) have been signed last year or are under negotiation, as is the case with Chile. This is certainly welcomed as it should dynamize this commercial trend and the integration between the European and LATAM markets.
Depending on the adopted fund strategy, Luxembourg offers a wide range of legal regimes to structure investments, through regulated funds (e.g. specialised investment funds (SIFs)), semi-regulated funds (e.g. reserved alternative investment funds (RAIFs)) and unregulated funds (e.g. whether exempted or compliant funds under the alternative investment fund managers rules). Several corporate forms are also possible, including as a partnership limited by shares (société en commandite par actions – SCA), a public limited company (société anonyme – SA), or one of the two Anglo-Saxon-inspired forms of limited partnerships. Subject to conditions, certain fund structures may grant access to the benefits of any relevant double tax treaties with some LATAM jurisdictions.
Conclusion
Luxembourg is an international hub for accessing investments into Europe and structuring investments worldwide and raise funds from international investors. Besides its attractive tax regime, it offers a wide range of regulatory regimes, legal forms and structuring options, allowing maximum flexibility to establish an investment fund, and making it the perfect location for LATAM sponsors and investors.”
“Latin America remains one of the most dynamic and attractive regions for investment, and Colombia is currently one of the main alternatives. Colombia is the fourth largest economy in South America, is projecting higher growth than Brazil or Mexico in the next 5 years, and in the first half of 2022 has surprised on the upside due to the great dynamism of private consumption and investment in machinery and capital goods.
It stands out for its conditions of stability, legal security and investment guarantees. At the same time, government institutions are making a great effort to attract foreign investment; it offers fiscal and tax incentives for companies that bring investment projects to the country, and has a competitive free trade zone regime. In the same vein, it is worth noting the recent approval in late 2021 of the One-Stop Investment Window, VUI. This platform will provide investors with relevant information for their business and will make available to them policies, actions, services and tools to facilitate the management and fulfilment of the investment cycle procedures.
Investment in Colombia, which has traditionally focused on the classic sectors: raw materials, infrastructure, tourism, etc., is also beginning to focus on sectors such as electric mobility, ecological agriculture, clean energy, circular economy, Artificial Intelligence research, etc., always with a strong commitment to the application of sustainable and impact investment criteria. On an anecdotal level, it is worth highlighting the Colombian government’s strong promotion of tourism linked to cycling, the king sport in this country.
There is a wide variety of ways for foreign investors to access the Colombian market, which in many cases also acts as a platform for entry into the region. In Luxembourg, the Chamber of Commerce of Colombia, Luxembourg and Belgium, together with the Colombian institutions, helps to channel this investment.”