For some global custodians Latin America is a local market. In July, BlackRock launched the first Colombian exchange-traded fund — IShares Colcap, which tracks the 20 most-liquid stocks on the Bolsa de Valores de Colombia. The firm, which has attracted $700 million to Colcap, most of it from Colombian pension funds, uses Citi for Latin American custody, asset servicing, fund administration and accounting.
Having also launched ETFs in Brazil, Chile, Mexico and Peru, New York–based BlackRock wants to appeal to Brazilian institutional investors. It’s recently talked to 20 of the country’s biggest pension funds, notes Daniel Gamba, CEO of BlackRock Latin America and Iberia. “We work with Citi as custodian due to its local presence, coupled with the respect it’s gained from Latin American governments,” Gamba says.
Citi, the No. 4 custodian worldwide with $13.5 trillion in assets through June 30, has a local custody presence in eight Latin American countries: Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru and Venezuela. Combined with its global network, this footprint has helped Citi win half of the custody market in some segments, says Alejandro Berney, New York–based head of securities and funds services for Latin America.
U.S. and European custodial banks have a growing presence in Latin America, where institutional investors are seeking new opportunities. Although foreign players face competition from firms based in Brazil and other countries, in some cases they’ve teamed up with these rivals.
Custodians know they can profit from Latin American institutions’ changing circumstances. Regulators restrict what pension funds can buy, but the recent acceptance of ETFs marks a shift away from fixed income. And during the past few years, pension funds in Colombia, Mexico and Peru have started investing offshore because they’ve grown so large relative to their domestic capital markets. “Brazil’s custody business is still mainly domestic, but institutional investors are looking for providers of global custody and fund administration,” says Álvaro Camuñas, Madrid-based head of Spain, Portugal and Latin America at BNP Paribas Securities Services, which opened a São Paulo office last year. “They want to take advantage of such hubs as Luxembourg.”
As they hire external asset managers, Latin American pension funds are adding consolidated reporting to services like fund administration, settlement and custody. Foreign custodians’ main target is Brazil, the world’s seventh-largest economy. Brazil ranks sixth for mutual fund assets and 12th for high-net-worth individuals, says Rowena Romulo, head of direct custody and clearing for worldwide securities services at J.P. Morgan, the No. 2 global custodian, with almost $16.95 trillion under custody as of ?June 30.
J.P. Morgan, which used to offer Latin American custody through local partners, recently started managing its own business. Its first priority is to expand in Brazil by building a team headquartered in São Paulo. “We’re hiring local expertise for clearing, settlement — offering the full complement of custody services,” explains Romulo, who is based in London. “We have global reach through our worldwide network that we’re readying to be available to clients in São Paulo.”
Phase two focuses on Brazil’s $1.5 trillion investment market. J.P. Morgan’s regional custody strategy also extends to Mexico and the Andean economies of Chile, Colombia and Peru.
Luxembourg-based Clearstream, Deutsche Börse’s posttrade service provider, launched its settlement link to Brazil in January. “We’re with Itaú Unibanco in Brazil as a local partner since they best know the requirements of this very large market,” says New York–based Acelina Santa Rosa, Clearstream’s head of customer relations and customer services for Latin America. Five Brazilian banks offer fund services through the link, which connects Brazil with 52 nations. For the country’s institutional investors, it’s another chance to go global. • •
