BlackRock makes Colombia push

Colombia is not a country that figures high on the radar screen of most global firms when it comes to the asset management business. 

The country’s pension funds, with $66bn in assets under management, are tiny compared to the $311bn in the regional powerhouse that is Brazil.

But small can be beautiful. 

Just ask BlackRock. 

The world’s biggest money manager by assets is setting up shop in Colombia following the unexpected but significant success of a local exchange traded fund (ETF) it launched last year. 

“It’s a small market [compared to Brazil and Mexico], but it’s a great market,” Armando Senra, BlackRock’s head of Latin America and Iberia region, told beyondbrics. ”

It’s a pretty open market and the regulatory environment is good.”

The decision to open an office in Bogotá this month comes just 12 months after BlackRock rolled out its first Colombian ETF. 

The iShare Colcap, which is denominated in Colombian pesos and tracks the 20 most liquid stocks of the Colombian Stock Exchange, attracted a staggering $800m since its launch. 

That is second only to BlackRock’s high yield corporate bond ETF in terms of the amount of funds raised during the same period.

“We were expecting $300m for the entire year,” said Senra.

While pension funds in Colombia are restricted in the amount they can invest in equities, there are no such caps on ETFs. 

Hence the popularity of BlackRock’s Colcap ETF. 

The fund was a way for pension funds to bypass the legal limit and increase their exposure to the booming Colombian stock market. 

The Colcap index, up 6.2 per cent since the start of the year, has outperformed both the MSCI emerging markets index (+4.3 per cent) and Brazil’s Bovespa stock market (-0.27 per cent).

With the new office, Senra aims to build on the success of the Colcap ETF and further expand its asset base among institutional and retail investors alike.

“In the short to medium term, we may have a more successful business in Colombia than in Brazil,” he said.

Brazil, as home to the region’s largest economy and stock market, might be the big prize in terms of assets. 

But getting a piece of the action is easier said than done, especially if you are a foreign fund manager.

With interest rates in Brazil having been well above 10 per cent for the past 12 years (it is currently at 8.5 per cent after a recent series of cuts), the country’s pension funds have historically been able to match their liabilities without investing abroad. 

Add to this the deep local markets, and pension funds have little incentives to  invest with foreign managers.

By contrast, Colombia, whose pension system is also privatised like Chile’s, has proved to be an easier market to crack.

According to Senra, the best opportunities in the short to medium term for foreign asset managers are in Chile and the Andean countries, because their pension funds are more open to investing abroad partly due to the limited investment opportunities at home.

(BlackRock’s Colombia operation is similar to Brazil in terms of AUM. Mexico is the group’s single biggest and oldest country market in LatAm.)

While Colombia’s pension funds will never be as big as those of Brazil or Mexico, they are expected to grow alongside the country’s economy.

Inflows into Colombia’s compulsory pension system is expected to hit $121bn by 2.014, according to figures from Latin Asset Management and Cerulli Associate. 

Of this, 30 per cent is expected to be invested offshore. 

This means the opportunity for global firms on the pension side alone amounts to roughly $36bn over the next two years.

Along with developing an even larger local client base for its Colombia ETF, BlackRock hopes to market the ETF to investors in other countries that are looking to diversify their holdings away from Brazil. 

Inversely, BlackRock is hoping to sell more foreign products to Colombia’s local investors.

“It’ll be hard to see Colombia become as big as Mexico, but we see a lot of potential for BlackRock to expand in the country,” said Senra. “

It’s a great place to do business.

Berny Polanía

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