How the Wealthy have adapted to the Brave New World of International Financial and Tax Information Exchanges, Amnesties

Capitalism in Latin America – LatAm could be the major opportunity set ahead, but beta play is over

Download the new Opalesque Latin America Roundtable here: https://www.opalesque.com/RT/LatAmRoundtable2016.html

Over time, we could witness some very good examples of capitalism in Latin America. During the ‘80s, Venezuela was the place where investors were focused. During the ‘90s, it was Argentina, and in the 2000s Brazil kicked in and everyone wanted to be invested in Brazil. In the meantime, we also had Colombia and Peru shifting back to a market oriented economy and almost doubling their outputs of oil and mining respectively in less than a decade. Going forward, will it be Mexico with the all the reforms that they have done? Or, will it be Argentina with all the reforms that it is making? Will Venezuela have a comeback? One of these regions will dominate the next 10 years.

But, at least for the moment, depending on one’s perspective on Latin America, it’s either dismissed or a region of tremendous opportunity. In public markets there’s been a massive exodus from emerging markets securities into more defensive and developed market investments. Consequently, also in Latin America, markets have experienced tremendous capital outflows.

At the same time, history has that some of the best investments in the less liquid market environment occur when there are dislocations, and certainly, there are many dislocations across the region. Despite depreciating currencies, falling economic output, increasing inflation that seems to be consistent across most of the countries in the region, and challenges with the legal systems, LatAm could be the major opportunity set that lies ahead.

The question is having access to the right people on the ground, identifying the right partners, identifying the managers that can size up those opportunities and execute effectively. There still remains considerable risk in that particular region, but again, if you are selective and can identify the opportunities and the right partners, there could be interesting investment opportunities. But for sure, the beta play has ended in Latin America. Right now is a great time to really find out who has put up their sleeves and who can actually generate results in alpha from markets that are either on a downturn or go sideways.

Opportunities in real estate, structured credit, infrastructure, and agriculture

With the end of the commodity super cycle and, in the case of Brazil, with the political turmoil the country is going through, there are a lot of companies with great assets suffering from a tremendous credit squeeze. Many of these are going through a fire sale process. This could also be a good moment for someone with a longer term horizon to enter the Brazilian markets. However, this is not an obvious move and there should be patience and a very thorough process of choosing well your assets. The sectors which present some really good opportunities right now are real estate, structured credit, infrastructure, and agriculture.

In fact, agriculture is a sector that is currently suffering from this credit crunch but shouldn’t be, since it's benefiting a lot from the currency devaluation. This is an area where Brazilian companies have excelled for years and years, and was also one the sectors that relied heavily on the State owned banks to finance itself. Agriculture is particularly interesting sector for foreign investors who don’t want to run a currency risk. Most of the financial structures are Dollar denominated as the majority of the corporations are big exporters, generating revenues in hard currency.

Colombia has opened up a wealth of opportunities, especially in the oil and gas sector. Peru is opening opportunities right and left in the mining sector. Argentina is finally back in the markets. In fact, there is already a lot of investment going on in Argentina. The last six months have been crazy in terms of M&A, but those are mostly Argentinians buying out companies because they feel comfortable already with the current reduction of roadblocks, which for an investor say from the U.S. is clearly not sufficient yet.

While countries like Venezuela or Argentina, even Cuba, are now perceived as the next places to send money, maybe we will not see countries like Paraguay, Bolivia, Colombia, and Peru in a better shape than now when it comes to an investment. So, if an investor continues to wait for the perfect timing, it might be too late.

How the Wealthy have adapted to the Brave New World of International Financial and Tax Information Exchanges, Amnesties

The world has fundamentally changed with all the international exchanges of financial and tax information which are either already in place or kicking in soon. Even offshore jurisdictions are signing into OECD standards and try to show that they cannot be used to hide money. Today, there is no way you will able to have money abroad without being declared and without being in a proper structure. You can plan for succession, you can do tax optimization or deferral, you can do asset protection, but you can’t plan outside the reach of governments.

Along with that, a number of countries, both in the developed and developing world, have structured or are structuring tax amnesties, so there are a good deal of people who are now paying more attention to their actual financial structures and things like reporting and these tax amnesties, and they are taking more time to decide whether to bring money to a country or not, where to structure their trust or simply finding out if they have to change something in their current structure. In quite a few cases, the wealthy families and individuals are currently prioritizing these questions over making actual investment decisions right now.

For example, there is anecdotal evidence that in Chile most people have accepted the amnesty and actually declared 100% of what they have. These amnesties have tremendous implications not only for the wealthy and the governments involved, but also provide a huge new opportunity set to asset managers to target those assets in order to manage them professionally.

The Opalesque 2016 LatAm Roundtable was sponsored by Litwak & Partners and took place in February in Miami with:

1. Alicia Green, Marketing Manager, BVI Finance
2. Andres Baez, Partner, LW Investment Management
3. Carlos Chaves, Founder & Partner, Seival Investments
4. Julie Neitzel, Partner, WE Family Offices
5. Martin Litwak, Founder and Managing Partner, Litwak & Partners
6. Stephan de Sabrit, Managing Partner, Leste Capital Management

The group also discussed:

• Which opportunities does the growth of the private pension fund system in Latin America provide? (pages 20-21)
• Cosmetics or fundamental reforms? What are the chances of Argentina’s Macri to succeed? (pages 12-15)
• What to do with the recurring populist swings in LatAm? (page 14)
• What fund structures are LatAm’s busiest lawyers setting up? (page 12)
• The role of triggers for investments in LatAm (page 17)
• What’s the #1 issue professional investors do not compromise when investing in LatAm? (page 17)
• How to best collateralize a loan (pages 18-19)
• Why are the new BVI fund types “Incubator” and “Approved Fund” so helpful for smaller managers? (pages 19, 21-23)

• Why Madoff could not have set up his fraudulent structure in an offshore jurisdiction (page 23)

Download here: https://www.opalesque.com/RT/LatAmRoundtable2016.html