Latin America has seen quite the shift in sentiment over the past couple of years, and not just in its politics.

While national elections have led to left-wing governments taking control in Chile, Peru and Colombia (with Brazil possibly next), Latin America’s high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors have been turning their attention to a new asset class (for them): alternatives.

As one Miami-based financial adviser and fund selector put it: ‘The alternatives investment space is going to grow leaps and bounds.’

He said the next 10 years will see unprecedented demand for alternatives from Latin American investors.

‘Forget the 60:40 portfolio, there are going to be changes that are going to be very dramatic.’

Alternatives have become mainstream across much of the investor world, but this market is a new one for Latin America. Up until now, Latin American investors could only be persuaded to invest beyond their borders if they got two things: high returns and high liquidity products.

Just look at Brazil. Its interest rate is currently a whopping 13.75%. At that level, I’m tempted to move to Rio de Janeiro, open a bank account and just park my money.

They want high-returning investment products, as they are used to their own high-octane, and often volatile, local markets. They also want high levels of liquidity so they can sell when the going gets tough.

Private market mania

But alternatives fever is now gripping HNW and UHNW Latin American investors, with private markets, in particular, appearing more and more on their buy lists, as a recent Citywire poll revealed.

In September, we quizzed more than 50 leading US-based offshore fund selectors assembled at our event in Houston, Texas on their current investing preferences. When asked what alternatives theme they were backing for their LatAm clients, 61% said private markets, followed by real estate at 27% and gold and precious metals at 12%. Hedge funds picked up nothing.

This move to private markets is a profound shift for Latin American investors who have long avoided investment products with lengthy lock-up periods. It’s as if your commitment-phobic friend moved in with someone they’d just met.

As one UBS Wealth Management offshore branch manager told us, private equity is now a ‘hot topic’.

‘Clients are looking for niche investments,’ she said. ‘We are having a lot of conversations about things like tailored lending, art, or wine banking, and definitely, private equity has become a hot topic. It’s always been there but only for very specific clientele. But, in the last couple of years, it has become more and more interesting for clients and we have seen a huge increase in clients looking for that.’

Fixed income comes in from the cold

Private equity may be the new must-have product for Latin American investors, but there is another asset class making a return. After almost two years in the proverbial wilderness, fixed income is back on the menu.

Our September poll found that 60% of the assembled US offshore audience has been increasing exposure to fixed income this year, albeit with a more conservative approach. Of those upping their allocation, 39% said they’ve been buying US Treasuries while 37% have been going for investment grade corporate bonds. The remainder went to high-yield corporate bonds (13%) and emerging market bonds (11%).

During 2020 and 2021 it was challenging to find attractive fixed income in a zero-interest rate environment,’ said an Argentina-based financial adviser.

‘In 2022, with the change in the US Federal Reserve’s rhetoric and the rise in interest rates, we could start offering many more opportunities, mainly for conservative and moderate investors.

‘We have been overweighting US corporate fixed income over emerging markets and Europe, since the US is more attractive with the current strength of the dollar. On the other hand, and since we run the risk of going into a world recession, we prefer investment grade and high-yield issuers with credit ratings of BB or more.’

A fellow Chile-based wealth manager and fund selector said Treasury bonds are the safe-haven asset to back in the current weaker economic scenario, as they also present attractive yields.

‘Unlike US fixed income, the panorama is different in Europe. [Europe has] greater inflationary pressures as a result of the energy deficit in which the region finds itself, and with a European Central Bank that took a long time to carry out the first rate hike, showing that there is still a long way to control inflation. In this sense, I find it difficult for now to find any attractive options in the region.’

Fixed income is a thing again!

In the meantime, with market uncertainty and recession fears a plague on global public markets, there is little reason for the private-market trend to stop. Asset managers would be wise to consider this when targeting this region.

Atholl Simpson is the editor of Citywire Americas, Citywire’s channel for the US offshore and Latin American investment communities.