Principal Financial Group Inc. claimed 18% of its operating profit from money management operations in Latin America in 2013, the result of a series of bold moves in a treacherous market where few other global managers have found success.
Both Goldman Sachs Asset Management and UBS Asset Management have retreated from Brazil, the largest market in Latin America, and other U.S.-based managers have struggled to gain a foothold in the region.
Principal's success in Latin America is explained in part by its partnerships with local firms, including a joint venture with Brazil's largest bank, and buying retirement fund businesses in Chile and Mexico.
Goldman curtailed its five-year institutional effort in Brazil in early 2012, ending with only $131 million in assets under management. Goldman spokeswoman Andrea Raphael said the business was unable to reach adequate scale.
UBS also closed its local asset management unit in Brazil in 2012. UBS spokeswoman Megan Stinson did not give a reason.
Others — including Morgan Stanley Investment Management, J.P. Morgan Asset Management, Legg Mason Inc. and BNY Mellon Investment Management — have assets under management in Brazil, but they are a fraction of the dominant Brazilian banks.
Brazil's largest money manager, Banco do Brasil SA, has around $200 billion; Itau Unibanco SA is second with $150.6 billion; and Banco Bradesco SA is third with $128.1 billion, according to Brazil's National Association of Financial Institutions.
By contrast, Legg Mason's fixed-income unit, Western Asset Management Co., the largest U.S. manager in Brazil, had around $14 billion in assets as of Dec. 31, according to WAMCO data.
GSAM had hired experienced salespeople from other asset management firms but couldn't gain traction without an established partner, said Lauro Araujo, owner of investment consulting firm LAS Ltd. in Sao Paulo. “It's very difficult going against the banks,” he said.
Mr. Araujo said competition is so tight that fees are very low, squeezing margins and making it difficult for non-local firms to succeed.
He said the 12%-plus Brazilian fixed-income return until an economic downturn in 2012 meant Brazilian pension plans only invested locally. This prevented global managers from getting assets to invest outside of Brazil and forced them, unsuccessfully, to compete against local managers for Brazil-specific strategies.