The 2nd Seminar on Asset Management in Colombia will bring together local and international asset management executives, to discuss the widening spectrum of asset allocation alternatives available to Colombia's institutional investors. The day's program will combine talks from influential regulators and industry leaders with views and analysis of respected executives from global financial services firms.
Colombia, Latin America's fourth largest market in terms of AUM, has benefited from a stable regulatory environment and a booming economy. Colombia is the newest frontier for global asset managers, with many of the top asset gatherers in Chile just beginning to get their feet wet in this quickly growing market. Colombian capital markets have enjoyed record volumes, foreign investment is soaring and there have been important advances in the standard of living, giving rise to a new class of mass affluent investors.
Consensus estimates for GDP growth in 2011 are coming in around 4%, and fiscal and monetary policy, along with an increase in public works, should support that in the lead up to sub national elections in October.
Colombia's private-pension-fund industry is most attractive to global managers, though the mutual fund business is also growing quickly and could eventually become more dynamic on the product and distribution fronts.
The private-pension system, the domain of AFPs, has been gaining a lot of attention from global asset managers, as the industry seems poised to replicate the experience of AFPs in Chile. Colombia's AFP pension managers stand today where Chile was at the beginning of the 2000s. They have amassed more than US$50 billion in assets, which is where Chile stood at the close of 2003. But the comparisons go beyond market size. For example:
- Chile converted to a multifund system in 2002, and Colombia has just taken the same step;
- Chilean AFPs were investing just 14% of their assets in cross-border funds and ETFs in 2002, while in 2010 Colombian AFPs were investing 14% of their AUMs in cross-border vehicles; and
- Chilean regulators in the early 2000s limited cross-border investment below 30% of total AUM (the limit is now 80%), while in Colombia the limit is already a more generous 40%.
While the Chilean AFP system has expanded from US$50 billion to US$140 billion between 2003 and 2010, the younger and broader Colombian AFP system has the potential to ramp up faster that its Andean neighbors, as annual inflows into the compulsory pension system are double that of Chile's (US$6 billion vs. US$3 billion).
Over the last five years, the obligatory pension system grew at a 20% clip, owing to solid levels of flows and excellent performance on investment, especially relating to Colombian equities. The industry was managing US$54 billion, nearly double their level as of December 2007.
As noted, AFPs in Colombia are free to invest up to 40% in international securities, including mutual funds and ETFs. Though the AFPs have never come close to reaching the international investment limit, regulators have continually boosted the ceiling ahead of demand, in order to avoid bottlenecks that can be caused by sharp upticks in valuations. As opposed to neighboring countries, the power to raise these limits rests not with the legislature but with the Superintendencia Financiera, the industry regulator.
By 2015, Latin Asset Management estimates that the Colombian pension industry will experience above-average growth of 20% on average, and reach US$152 billion in assets (including voluntary contributions). A rising standard of living and a growing formalized workforce will provide oomph to the flow side of the equation, while increased exposure to equities can generate additional upside on the performance side resembling the 34% AUM gain in 2009.
International exposure, which has languished in the low teens percentage-wise for the past three years as the AFPs capitalized on a soaring local stock market and an appreciating local currency, will likely rise sharply to 30% of AUM over the next five years. This would translate to an international allocation of US$43 billion, some US$36 billion higher than their September 2010 levels.
The Seminar on Asset Management in Colombia is a mix of value-added presentations for international and local experts: on the one hand, the Seminar provides a venue for developing relationships with local asset management executives while giving global firms an opportunity to raise their profile in Colombia; on the other, it features illuminating discussions on local-market issues in terms of product development, distribution, portfolio management and regulation, useful to both local players and international providers.
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