Colombia’s new asset management regulation opens window of opportunity

Whereas fixed income is the predominant asset class and accounts for nearly 90% of the industry’s assets, with liquidity funds of 300 to 350-day durations being the investment of choice, the new regulation has opened an interesting opportunity for alternative investment portfolios such as private equity, hedge or real estate funds.

Currently, alternative investment is reserved to some pension schemes, closed-end funds or tailor-made funds and not offered to the general public. According to BBVA Asset Management’s president Giovanny Bautista, the market, which moves over US$20 billion in assets under management, “does not have much of an equity culture.” He notes that as of February, “out of the COL$10 billion managed by brokerage companies only 30% is in mixed portfolios which are divided equally between fixed income and equity.”
 

The new regulation introduces various major changes. The first of these has to do with the mandatory delegation of the management of securities to a custodian by the asset manager. It allows a fund management company to delegate the management of a fund to a third party and introduces the possibility of third-party sales which was not allowed before. The industry will also start to regulate omnibus accounts that did not exist before regulation and fund compartments have been substituted by classes. 
 

Finally it is worth mentioning that before the new regulation funds were open, closed or “phased”, and the new regulation eliminates the “phased” plan funds. Indeed the new regulation opens an important growth opportunity although Mr. Bautista points out that it is not “as complete as an institution like BBVA would have desired”, bearing in mind that the company can combine its local asset management expertise with its international experience in products such as capital protected funds which have been a success in Europe, Chile and Mexico.