BUENOS AIRES - While Argentine fund managers greeted with enthusiasm the introduction of a new bill that would permit funds to invest up to 100 percent of their assets internationally, the step is also welcome news for offshore investment companies eager to offer their products to local investors.
A bill sent to Congress on May 10 by the Banking and Insurance Undersecretary would remove all restrictions on foreign investing from the 1992 mutual fund law.
The measure, almost certain to be passed quickly by Congress, came at the insistence of the World Bank which had mentioned widening Argentine investment horizons in a clause of the latest extended credit facility that the World Bank granted to Argentina.
Currently, the Argentine fund law requires that at least 75 percent of local fund portfolios be comprised of instruments from the Mercosur trading bloc - Argentina, Brazil, Uruguay and Paraguay - as well as Chile. Investments in foreign instruments such as shares of General Motors or German government bonds are limited to 25 percent of the portfolio.
Given its restrictions on investing in more stable economies, this requirement has been viewed as the chief culprit for investor aversion to all but the most conservative of investment vehicles, such as money-market mutual funds.
As of April 30, money market funds accounted for $6.6 billion of the $8.3 billion managed in local funds, according to data collected by Latin Funds Management, a newsletter based in Buenos Aires which covers the asset management business in Latin America.
The law has also created an unwelcome environment for international firms, which, aside from being restricted from publicly offering their offshore products locally, cannot set up local vehicles that invest in the markets where they commonly have the most expertise.
But the proposed bill, coupled with a recent regulatory change permitting fund-of-funds investing, opens up a spectrum of opportunities for offshore firms. These opportunities include:
Creation of local funds that invest in that company's existing family of mutual funds;
Promoting these "feeder funds" to local distribution networks interested in selling third-party products;
Shopping the offshore family of funds to portfolio managers of local products;
Creating alliances with local fund management companies in order to co-brand international investment products.
Besides the retail opportunities the bill would afford, market participants point out that the rapidly growing Argentine AFJP pension fund system, with $12.5 billion under management, would be a logical target for a new product initiative. That is because the pension funds can allocate up to 14 percent of their assets to local mutual funds. The pension funds - severely limited from investing overseas - could channel their cash into "local" mutual funds that in effect offer access to the world's top managers and developed markets.
Companies such as Invesco, Templeton, Fidelity Investments, MFS and Putnam already have established operations in Argentina. But, up to now, they have primarily been servicing private-banking relationships with local banks and brokers who sell offshore funds to high-net-worth clients. Invesco would have the jump on the competition, as it gambled early on to set up a local fund base and currently has five funds in the local market.
Distribution should play a key role in how successful international companies are in Argentina and banks may warm up quickly to the idea of promoting international funds given the diversification and security they offer.
Tom Ciampi is the editor of Latin Fund Management, an SDP publication based in Buenos Aires covering the asset management business in Latin America.