“We have a saying in Spain,” says BBVA’s head of global asset management Luisa Gómez Bravo. “‘No vendas la piel del oso antes de haberlo cazado’.” Don’t sell the bearskin until you’ve hunted the bear. The proverb comes in response to the question of how the €140bn asset management unit of one of the biggest global banking brands remains so little-known among Europe’s institutional investors.
“European pensions are certainly interesting for us, but it’s a very competitive market. Before approaching it I wanted to make sure that I had the best possible processes and people in place,” Gómez Bravo explains. BBVA Asset Management is two years into a project to make asset management one of the bank’s core strategic businesses, with a global focus and operational structure.
“Prior to 2008 the focus in asset management was captive and retail, complementing the bank’s distribution networks to penetrate growth markets,” she says. “There are very good margins available from this business and we’ve done successful work to build those local franchises. But we haven’t focused on the external institutional client, and we weren’t set-up to deliver the kind of service they need. A global view of the unit enables us to bring added value to institutional clients, because we start to generate a holistic view of the regions where we have expertise.”
Indeed, wholesale banking and asset management is now the bank’s only business unit that is not regional. But globalising is not about offering every kind of global product to every kind of global investor. BBVA has set itself the task to become the go-to “pan-Latin-American product specialist” for institutional investors (it is set to augment its existing series of Latin-American ETFs with a larger roll-out of products listed on European and local exchanges). The reconstruction of the business unit has been about integrating that local pan-Latin expertise under a global CIO, using the same standard investment, risk management and valuation processes. As a result, Gómez Bravo says that more than 70% of her first and second reporting lines have changed in everything from portfolio management to IT infrastructure; and 25% of those personnel have come from big names such as Fortis, Western Asset Management and BlackRock.
The challenge has been to institutionalise and globalise operations without eroding the local insight that Gómez Bravo singles out as BBVA’s key asset. “You often find assets managed from ‘hubs’, but when we took the decision to globalise asset management, we also decided to maintain and develop those local teams,” she says. “The group now has more than 100 investment professionals in Latin-America. We think it’s important to know what the pension funds are thinking, what the M&A deals are, what the credit flows are, as those flows and market-timing can often be just as important as the fundamentals in emerging markets. We have a unique value proposition in our local teams. We needed to work on globalising the processes, and now that work is done we are in a position to deliver that value.”
Still, while there has been plenty of work beefing up corporate and investment banking teams in London, Paris, Frankfurt and Milan, spreading the news about BBVA’s capacity to help European companies realise their Latin-American projects, the asset management unit will not be clamouring for every cent of European pension money it can get. Here the aim is to target select clients that are ‘serious’ about Latin-America, for whose assets it feels it can compete against better-known names.
“We aim for efficient deployment of resources,” says Gómez Bravo. “You won’t see BBVA hiring 100 sales people to market Latin-America to European investors. We’ve been more interested in developing ties with Asian investors, where appetite is higher. The trade flows are becoming so strong, leading to correspondingly strong investment flows, especially from Chinese investors. We think there is a great opportunity to position Latin-America more deeply with Asian investors, and we have been helping them become more familiar with the region and the specifics of the individual markets.”
It is not just appetite for Latin-American investments that is growing in Asia - pension provision and saving in general are potentially set to explode. No wonder BBVA feels comfortable moving for this high-growth market, given its experience riding a similar wave in Latin-America. Of its €140bn under management, around €55bn is managed for Spanish investors, €35bn for Mexicans and €25bn for Chileans. In these markets, competing with local providers and global giants like Citibank and ING, BBVA enjoys a 30-40% market share in mutual funds and pension structures like Afores or Administradoras de Fondos de Pensiones (AFPs). It is one of the two biggest mutual fund firms in Mexico, and is a market leader in Chilean pensions.
“Contributions to Latin-American pension funds have been growing along with the population and the employed,” says Gómez Bravo. “The growth has been coming from Latin-America. Mexico this year will be growing assets under management at a rate of around 40%, and we have seen double-digit growth in places like Colombia as well. We are looking at a ‘growth recession’ in terms of client numbers.”
BBVA is using this experience to get involved with Asian pensions right at the ground floor. In November it signed a co-operation framework agreement with China CITIC Bank (CNCB) to advise on the structure of China’s pension schemes - an agreement that gives it access to CNCB’s custodian systems and pensions team, as well as information related to clients developed jointly by CNCB and BBVA, which signed custody co-operation service agreements with CNCB. “The pension model BBVA implemented in Latin America will enable us to offer solutions to the Chinese pension market,” said Eduardo Fuentes, BBVA’s global head of pensions and insurance.
A week earlier, the bank had taken another big step out of its Latin comfort zone, buying almost 25% of Turkey’s biggest bank, Garanti Bankasi.
The move was welcomed (eventually) by investors, and credit rating agencies offered their approval, too. S&P maintained its AA long-term rating on the bank, while reiterating its concerns about concentration of revenues in its troubled domestic market, sensitivity to sovereign risk, and over-exposure to emerging markets compared with similarly-rated competitors.
Expanding banking services in Turkey and asset management and pensions in China, do little to back-pedal on emerging markets exposure. On the other hand, it would be perverse to criticise a company for becoming over-exposed to one set of revenues, when that exposure has come from massive growth for which it has been strategically positioned for years. Its recent moves are just more examples of getting ahead of that curve. In that context, the bank’s decision to make asset management a core global business in the teeth of the 2008 crisis - when others were ditching theirs - should be seen as a vote of confidence in this long-term, high-growth strategy.
“That commitment meant that we were able to take the long view and develop an ambitious investment plan,” says Gómez Bravo.
And it is not as though BBVA is turning its back on ‘old Europe’ completely. While Europe’s pensions are annuitised and portfolios drawn down, Gómez Bravo notes the growing need for financial services providers to step into the advisory role for pensioners. “That’s why it’s so important to cater for individuals as well as the corporate plans of which they may be members,” she says. It is a rare insight one might expect from the head of a business that is used to dealing with pension systems that have never really had defined benefit schemes. It suggests that, as well as translating seamlessly to the Asian context, that experience may well prove useful as the demographics and structure of European pensions evolve.