Session 3 Presentation

CFA CHICAGO ANNUAL
CONFERENCE
Session 3: Asset Managers in Latin America
May 7, 2015
© 2015 MSCI Inc. All rights reserved.
Please refer to the disclaimer at the end of this document.
INTRODUCTION TO PANELISTS
Sura Asset Management
Lucas Ramirez, CFA
Head of Research
2
#1 PENSION FUND MANAGER IN LATIN AMERICA
Comprehensive Product Offering Tailored to Life Cycle of Our Clients
Largest Pension Fund Manager…
Mandatory Pension
…With Enhanced Value Proposition Through Voluntary Saving Products
91% AuM
■ Management of mandatory pension contributions
Wealth Management
Life Insurance
& Annuities
7% AuM
■ Individual insurance and annuities
■ Voluntary pension and mutual funds
■ Highly-regulated market
■ Additional retirement options
■ Complementary products
■ Stable cash flow generation
■ Underpenetrated business with
high growth potential
■ Customer service
Over 30 Years of Pension Management Expertise(1)...
…with a Unique Business Country Diversification
EBITDA Breakdown
1st
Assets Under Management
1st
Market Share by AuM
US$114 Bn
2014, % of Total
MEXICO
Number of Clients
2014 Adjusted
EBITDA(3)
US$ 505.5MM
2014 Revenue
US$ 1,978MM
31%
COLOMBIA
23.3%
14%(2)
EL SALVADOR
1st
2% AuM
17 MM
PERU
1st
22%
Geographic Coverage
Source: internal calculations and Consolidated Financials
6 Countries
URUGUAY
CHILE
3%
30%
Notes:
1. Figures as of December 2014. Clients and AuM include Protección and Crecer, entities not consolidated by SUAM
2. Represent our share of Protección’s dividends based on our 16.5% ownership interest in Protección for the year ended December 31, 2013. For the year ended December 31, 2014, our proportional share of
Protección’s dividends will increase to 49.4%. Actual EBITDA figure for Colombia was US$89.3MM (includes dividends received from Crecer)
3. 2012 and 2013 EBITDA defined as net income for the year after subtracting a business combination adjustment during the one-year adjustment period taken as a result of our acquisition of Seguros SURA
Peru, adding back a financial provision that we took in relation to our agreement to indemnify Protección for any losses it may sustain by inheriting certain of AFP ING Colombia’s lawsuits, minority interest,
deferred income tax expense, depreciation and amortization and financial expenses, and also after adding back or subtracting, as the case may be, foreign currency exchange movements with respect to our
financial income and financial expense
3
MORE THAN 30 YEARS OF ACCUMULATED EXPERIENCE
ALONG WITH SYNERGISTIC GROWTH
 Acquisition
of
Primero Seguros
de Vida
 Distribution
A
stock brokerage firm,
“Agente de Valores
SURA” was started up
agreement with
BlackRock
Multi-decade experience provides SUAM with a unique
knowledge in the dynamic asset management industry
 Acquisition
 Acquisition
of AFP
 Acquisition of
Crecer in EI
ING Latam
Salvador
of 63%
Seguros SURA
(Formerly Invita)
and Hipotecaria
SURA
2014
2013
 Successfully
2012
 Acquisition
of
Santander Latam
 Beginning
of the
 Incorporation of
private Pension
AFP Santander
System in Mexico
 Incorporation of
AFORE ING and
AFORE Santander
2011
 Beginning
of the
private Pension
System in Chile
 Incorporation of
AFP Santa Maria
and Summa
of the
private Pension
 Incorporation of
System in
AFP Proteccion
with the Serverance Colombia
Funds line business
of 50%
BBVA AFP
Horizonte in Peru
2007
 Incorporation
of
Asset ManagerAFISA SURA
 Incorporation
 Beginning
 Acquisition
priced its
inaugural international
10-year USD 500MM
bond offering. The
notes priced at a yield
of 4.930% and a
coupon of 4,875%. The
order book was over
subscribed 8.0x.
of
Banguardia and
Bansander
companies
2000
 Merger
1996
between
Proteccion and ING
Colombia
 Our
2013 management report was
successfully published and
received a level B, by the Global
Reporting Initiative (GRI)
1994
1993
1991
1981
Source: Company fillings
 Beginning
 Beginning
of the
private Pension
System in Peru
 Incorporation of
AFP Integra,
Horizonte and
Megafondo
of the
private Pension
System in Uruguay
 Incorporation of
Santander AFAP
and Comercial
AFAP
4
UNDISPUTED LEADER IN STABLE MANDATORY PENSION
BUSINESS
Dominant Market Share in Mandatory Pensions Across Latin America(1)
Company
Industria de Pensiones (Mandatorias, Voluntarias y Cesantias)
Region
Chile
23.3% 1°
Market Share
LatAm
1
11.0%
23,4%
1
2
9.9%
20.6% 4°
Chile
21.2%
3
9,7%
9.0%
20,7%
4
9,4%
26,2%
9,3%
6
7,4%
7
6,8%
6.9%
8
4,4%
Peru
40.9% 1°
4.4%
Total industry
454.8
46.7% 2°
Perú
Uruguay
46,5%
14,1%
41,5%
18,2%
2
3
2
1
3,0%
6,7%
0,1%
0.4%
43.0%
42,6%
16.8%
13,2%
53,5%
53.3%
17,0%
26.5%
4,1%
452
18.1% 2°
El Salvador
26,7%
6.9%
AUM Industria
36.7% 2°
Uruguay
México
6.4%
25.9%
Colombia
El Salvador
25.4%
4.4%
9
2.9%
36,8%
2
3
27,9%
5
14.8% 3°
Colombia
27.8%
21,3%
11,0%
9.3%
Mexico
13.2%
26,7%
11,7%
12.3%
161
78
7
36
10
163.6
160.8
38.4
72.9
11.0
8.1
6
11
4
4
4
2
Number of players
Notes:
1. Mandatory pension fund market share as of December, 2014
158
5
INTRODUCTION TO PANELISTS
Principal International
Ned Burmeister
Senior Vice President & Chief Operating Officer
6
PRINCIPAL FINANCIAL GROUP
A GLOBAL
INVESTMENT
MANAGEMENT
LEADER
•Fortune 500 company
•135 year history
•19.7 million customers
•Offices in 18 countries
•Nearly 14,900
employees worldwide
Operating Earnings*
USD $ 1,443 Mn
2014
AUM by Source
USD $ 519 Bn
as of December 31, 2014
U.S.
Insurance
Solutions
16%
Principal
International
19%
Principal
Global
Investors 8%
Principal
Global
Investors
22%
Retirement &
Investor
Services
57%
Retirement &
Investor Services
51%
Corporate
1%
Principal
International
22%
U.S.
Insurance
Solutions 4%
(34% outside of U.S.)
*After tax. Results exclude corporate.
7
LATIN AMERICA
OUR LATIN
AMERICAN
PRESENCE
MEXICO (1993)
Pensions, Mutual Funds,
Asset Management,
Annuities
• AUM of USD $ 11.9 Bn
• 3.8 Mn Customers
• 5th largest AFORE (by
AUM 6.3% market share)
CHILE (1995)
Combined AUM
USD $ 97.2 Bn
Pensions , Mutual Funds,
Asset Management,
Annuities
• AUM of USD $ 40.7 Bn
• 0.8 Mn Customers
• #1 in mandatory pensions
for high income segment
• #1 in voluntary products by
AUM
AUM as of December 2014. SOURCES: Brazil : Fenaprevi December 2014. Mexico : CONSAR. Chile: SP.
The Principal is the 2nd largest pension provider in Latin America by AUM among multi-country pension providers.
BRAZIL (1999)
Pensions, Mutual Funds,
Asset Management,
Annuities
Brasilprev – a 25%
owned joint venture with
Banco do Brasil
• AUM of USD $ 43.3 Bn
• 1.8 Mn Customers
• #1 Net Deposits
• #2 in AUM
Claritas – 62.73%
indirectly owned
diversified asset
manager
• AUM of USD $ 1.3 Bn
8
INTRODUCTION TO PANELISTS
Alpha4x Asset Management
Manuel Mejia-Aoun
Founder, Managing Partner, and Chief Investment Officer
9
ALPHA4X ASSET MANAGEMENT
• Originally launched as under Bladex Asset Management under Bladex (Banco
Latinoamericano de Comercio Exterior, S.A.)
• 7 years focused in Latin American investments as part of Bladex
• 2 years independent as a new company with expanded investment universe
• Headquartered in New York with an affiliate in Sao Paulo
• Manage 2 funds: Cayman and Brazil
• Bladex and XL Group are strategic partners
10
ALPHA4X ASSET MANAGEMENT
• Discretionary Global Macro Hedge Fund
• Currencies, interest rates, sovereign credit, equity indices
• Strategy Characteristics:
─ Target consistent risk-adjusted returns with moderate volatility
─ Low to slightly negative correlation to major indices
─ Disciplined risk management with a differentiated investment and portfolio
construction process
11
OVERVIEW: ASSET
MANAGEMENT IN LATIN
AMERICA
12
LATIN AMERICA: EQUITY MARKETS
MSCI Emerging Markets
Country
China
Korea
Taiwan
South Africa
India
Brazil
Mexico
Malaysia
Russia
Indonesia
Thailand
Turkey
Poland
Philippines
Chile
Qatar
United Arab Emirates
Colombia
Peru
Greece
Egypt
Hungary
Czech Republic
Weights
22.8%
15.3%
13.6%
7.8%
7.8%
6.8%
4.4%
3.6%
3.3%
2.8%
2.6%
1.5%
1.5%
1.4%
1.4%
0.8%
0.6%
0.6%
0.4%
0.4%
0.3%
0.2%
0.2%
MSCI Emerging Markets Latin America
Country
Weights
Brazil
51%
Mexico
32%
Chile
10%
Colombia
4%
Peru
3%
MSCI Emerging Markets Latin America
4% 3%
Brazil
10%
Mexico
Chile
Colombia
32%
Peru
51%
13
LATIN AMERICA TRENDS
NEED FOR
RETIREMENT
AND ASSET
MANAGEMENT
Percent of retirement assets relative to GDP
83%
62%
15%
13%
United
States
Currently a small pool
of retirement assets
Brazil
Chile
Mexico
Percent of mutual fund assets relative to GDP
96%
43%
United
States
SOURCES: OECD Global Pension Statistics 2014
Cerulli Latin America Distribution Dynamics 2014, Global Markets 2014; IMF
Brazil
15%
10%
Chile
Mexico
14
LATIN AMERICA TRENDS
NEED FOR
HIGHER
VALUE-ADDED
PRODUCTS
• Latin America interest
rates converging to
developed economies
• Declining interest rates
will drive:
– Asset diversification
– International
investments
– Asset allocation
20.0
Real Interest Rates (%)
15.0
US
Mexico
Brazil
Chile
10.0
5.0
0.0
2002
2008
2014
-5.0
Percentage of Pension Assets Invested Abroad
0%
17.5%
0.1%
18.5%
35.2%
42.4%
50%
Percentage of Mutual Funds Assets Invested Abroad
0%
0.6%
2.0%
6.2%
21.0%
Nominal rates adjusted for inflation. Cerulli Latin America Distribution Dynamics 2014, World Bank Pensions
50%
15
UNDERPENETRATED REGION WITH SIGNIFICANT
GROWTH POTENTIAL
• As of 2013 Latin America accounted for just 2.5% of global AUM.
16
Source: Boston Consulting Group.
YOUNG INDUSTRY WITH SIGNIFICANT ROOM FOR
PENSIONS AND WEALTH MANAGEMENT GROWTH
% GDP – Pensions
% GDP – Mutual Funds
% GDP – Life Insurance Premiums
(%)
(%)
(%)
120.0
90.0
4.5
4.1
80.2
100.0
80.0
4.0
70.0
3.5
60.0
3.0
95.7
80.0
3.5
70.5
49.2
50.0
58.5
2.5
2.3
60.0
40.0
40.0
2.0
30.0
1.5
20.0
1.0
29.8
0.7
12.8
5.8
Source: IMF and local regulators. Figures as of 2012. Market
penetration = AuM / GDP
Notes:
1. United Kingdom
Source: FIAFIN and IMF. Figures as of 2012
Europe
US
El Salvador
Uruguay
Colombia
0.0
Mexico
Colombia
Peru
Mexico
0.6
0.5
0.2
Europe
N.A.
0.0
Chile
Europe
US
El Salvador
Uruguay
Colombia
Peru
Mexico
Chile
0.0
(1)
1.7
0.8
0.5
Chile
7.1
US
10.0
El Salvador
13.0 16.9 17.4
Uruguay
20.0
0.9
Peru
22.4
Source:Swiss Re Sigma Report, Statistical Report (figures as
of 2012)
17
LATIN AMERICA IS EXPECTED TO POST THE HIGHEST
GLOBAL GROWTH IN AUM
• Economic growth and wealth formation in Latin America should lead to strong
growth in AUM in the region.
18
Source: PWC, Asset Management 2020, A Brave New World.
LATIN AMERICA IS STILL UNDERPENETRATED IN TERMS
OF HNWI
• Latin American share of global High Net Worth Individuals (HNWI) is just 3.6%,
compared to its ~9% share of the total population.
19
Source: World Wealth Report 2014 CapGemini RBC Wealth Management
THE LATIN AMERICAN MANDATORY PENSION FUND
INDUSTRY
• Latin America is one of the pioneers in introducing individual capitalization
schemes as part of their compulsory component of their pension systems. Thirty
years have passed since Chile took the first step.
• This process has involved the substitution, to different degrees, of pay-as-you-go
public pension systems by a fully funded, defined-contribution system, with
individual pension accounts managed by pension fund administrators.
• 10 countries in the region have adopted mandatory pension fund schemes.
• AUM in the system reached USD 508 bn as of December 2014. Annual inflows
into pension funds are on average USD 22-25 bn.
• Exposure to equities ranges from 26% (Mexico) to 47% (Peru).
• Limits on international investing generally vary by multifund. Chile’s multifund A
can invest 80% internationally. Cross-border exposure ranges from 17%
(Colombia) to 43% (Chile).
• The exit from the Latin American pension industry of European players, led to
further consolidation in recent years. Top three pension funds in each country
control between 57% (Mexico) and 100% (Peru) of AUM.
20
Source: BBVA Research, OECD, Latin Asset Management.
SIZE OF THE MANDATORY PENSION FUND INDUSTRY IN
LATIN AMERICA
• Total AUM in the Latin American mandatory pension fund system reached USD
508 bn as of December 2014.
• Total mandatory pension fund affiliates in the region reached 85.7 million.
194.4
165.4
68.7
38.1
11.0
México
Chile
Colombia
Perú
Uruguay
10.5
Bolivia
8.1
6.0
5.4
El Salvador
Costa Rica
Dominican
Republic
0.7
Panama
21
Source: FIAP – Federación Internacional de Administradoras de Fondos de Pensiones.
THE LATIN AMERICAN MUTUAL FUND INDUSTRY
• Brazil accounts for 85% of Latin American mutual
fund AUM.
• The onshore mutual fund business in
Latin America manages USD 1.4 trillion.
• Mexico and Colombia have not yet matured, with
AUM-to-GDP ratios far inferior to those achieved
by Brazil.
• In Brazil, corporate pension plans (defined benefit)
are important investors in local mutual funds.
• Local mutual fund exposure to fixed income in
general ranges from 75% to 87% of total AUM.
• Local mutual funds invest 77% to 100% of AUM in
domestic instruments.
• Fund managers owned by banks control 54% - 96%
of total industry AUM. Closed distribution
enforced by local banks.
• Limited participation of the average citizen.
22
Source: Latin Asset Management, SURA Asset Management.
BRAZILIAN GROWTH IS NOT RECENT
*Updated to October 31, 2014
23
CURRENT OPPORTUNITIES IN THE BRAZILIAN MARKET
• Institutional Investors are diversifying their portfolios with a higher participation
of equities
• Through the development of the local equity market, there is a growth in
demand for index-based contracts
• Release of Fixed Income ETFs with a special tax treatment to accelerate product
growth
─ Ordinary Law sanctioned by Executive Order 13043/2014
• Increase in International Asset Allocation to 20% for regular investors and 100%
to qualified investors
─ CVM 555 to be in effect starting 7/1/2015
• With the middle class growth in Brazil, all of the above actions will help the local
economic market to grow even further
24
THE PACIFIC ALLIANCE
• Latin American trade bloc formed in 2011 that includes Mexico, Peru, Chile, and
Colombia
• These four countries represent nearly 36% of Latin American GDP
• If counted as a single country this group of nations would be the sixth largest
economy in the world
• Costa Rica began the process of joining the Alliance in February, 2014
• The Mercado Integrado Latinoamericano (MILA) originally integrated the stock
markets of Peru, Chile, and Columbia
─ Mexico joined in late 2014
• The MILA now includes 780 issuers, making it the biggest market by number of
listed companies in Latin America, and the biggest in terms of market
capitalization
25
MEXICO
• Intense competition among the Mexican pension plan managers (Afores) along with
falling fees has led to consolidation
• Regulation currently pending senate approval would require the Afores to be
measured against a blended, multi-asset class benchmark
• If enacted, the new law would push each Afore to better understand performance and
risk relative to the new benchmark
• Current regulation allows Afores to invest up to 20% of their assets internationally
─ The system is already at 18% and there is an apparent willingness to increase that
limit
• Afores cannot invest in international assets outside of SIC (Sistema Internacional de
Cotizaciones)
─ SIC is a platform within the Mexican Stock Exchange with limited access to
international securities
─ Therefore, almost all Afore international equity exposure is through ETFs
26
CURRENT OPPORTUNITIES IN THE MEXICAN MARKET
• Middle class growth
• Increasing demand for international equity
• There are currently >500 international ETFs listed on the Mexican Stock Exchange
(BMV) and that number has been increasing at a 46% CAGR since 2004
• Mexican investors can now access >600 assets in Chile, Peru and Colombia via the
MILA platform
International ETFs listed on the BMV
600
500
369
400
443
517
271
300
214
200
100
402
476
106
11
25
2004
2005
140
54
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
27
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28
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SURA ASSET MANAGEMENT: NOTICE AND DISCLAIMER
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30