A spurt of asset management M&A activity in Mexico signals a new push by money managers into what has become one of the hottest markets in Latin America.
Money management giant BlackRock Inc. is just the latest manager to bet on an expanding asset management market in Mexico.
BlackRock announced Nov. 28 it had signed an agreement to acquire the asset management unit of Citibanamex, a unit of Citigroup Inc., a deal that will double BlackRock's assets under management in Mexico to $62 billion. BlackRock has a total of $120 billion under management in Latin America.
BlackRock's building of its business in Mexico is reflective of a growing middle class in the country, a phenomenon that is occurring in other parts of Latin America, said Axel Christensen, BlackRock managing director and chief investment strategist for Latin America and Iberia, based in Santiago, Chile.
"A very important cohort of citizens, of workers, are seeing their incomes increase and realizing they have to save for retirement," Mr. Christensen said.
In October, Principal Financial Group announced it had agreed to acquire MetLife Inc.'s Mexican retirement fund management business, MetLife Afore S.A. de C.V., and would combine it with its existing business to create the fifth-largest pension administrator, or afore, in Mexico. Mexican workers are required to pay a portion of their wages into an afore in exchange for a defined contribution retirement benefit.
Earlier in October, outside of the afore system, Dutch money management firm Aegon NV and its Transamerica Corp. subsidiary announced they had entered into a relationship with Mexico City-based wealth management company Administradora Akaan to create a money management firm called Akaan Transamerica that would sell Mexican and international mutual funds and other investment strategies to retail and institutional investors.
Another transaction in October involved Mexico's largest bank, Grupo Financiero Banorte, which also runs the largest afore. It agreed to buy Grupo Financiero Interacciones SA, another major Mexican bank and its money management unit.
Money managers are interested in the Latin American market because of improving economies, a growing middle-class and an embrace of free markets not only in Mexico but also in Argentina, Brazil, Chile, Uruguay and Peru, said Federico Cervantes, a Toronto-based senior investment consultant with Willis Towers Watson PLC.
"Those countries are going through a more market friendly political shift, right now, that will really provide really good opportunities," he said. "The asset managers recognize that."
A Dec. 14 report by Moody's Investors Service said the outlook for asset managers in Latin America is stable, "with Argentina and Brazil emerging from recession, which will support industry growth."
In Mexico, the report notes, midyear presidential elections in 2018 and NAFTA negotiations with the U.S. and Canada could cause market volatility. But it said Mexico's afores "are still in the accumulation phase and will not experience outflows over the next 10 to 15 years."
The report also said few Mexican citizens are invested in bond funds, which is a positive sign for the asset management industry in Mexico. "The funds low market penetration represents a significant growth opportunity for asset managers, not only in terms of AUM but also in the number of investment vehicles," it said.