On June 4 2001, Mexico enacted a new Investment Companies Law (Ley de sociedades de inversión, or ICL). Most of the provisions of the new ICL became effective on December 4 2001, and all remaining provisions became effective as of January 1 2002. The ICL is the most recent attempt by the Mexican regulatory authorities to improve and modernize the asset management industry. It provides for very important changes to the way the industry will be shaped in the future. Although the regulators are still analyzing the issuance of specific regulations, we hope that they will be finalized and issued no later than the second half of 2002. The intent is to give a boost to the industry and to try to raise it to international standards. When compared to the macroeconomic size of asset management in other countries, we envision that the Mexican market has a potential growth rate of at least 30% per year over the next 10 years. In fact, the average growth rate of the industry during 2001 was approximately 67%, during the last three years it averaged 40% growth per year.
Present industry status
There are approximately 320 mutual funds (sociedades de inversión) operating in Mexico, managed by 36 asset management outfits (sociedades operadoras de sociedades de inversión), with a total clientele number in excess of 500,000. Their total assets under management are approximately $30 billion, which represents only 3.5% of the total gross domestic product. This amount also represents approximately 13% of all bank deposits. Nonetheless, it is envisioned that the total amount of assets under management will increase significantly during the coming years, taking a significant market share now held by bank deposits. Of the 36 asset managers authorized to operate in Mexico, only 11 are completely "independent" and not related to any financial, banking or stock brokerage group. The market share of these independent asset managers is approximately 12% of the total assets under management; whereas the total market share of the seven largest managers related to financial groups control approximately 69% of these assets. It is significant to mention that the independents, while holding only 12% of assets, have as much as 30% of the investors, since in general they cater to smaller investors. The remaining 19% is held by other managers related to smaller financial groups. As the industry grows, there will be plenty of room for growth for all of these smaller independent groups.
Some of the important changes in the new ICL included the following:
- the creation of fund distributors; the ICL now provides that: (i) fund managers will be allowed to distribute funds managed by other managers; and (ii) other third parties may also act as funds distributors;
- the ability of asset managers to provide financial advice and valuation services to its clients;
- it precludes commercial banking institutions and stock brokers to manage funds, a new entity which will be independently regulated must be formed for such purposes;
- will allow specific funds to: (i) incur debt and issue bonds; (ii) perform and hedge transactions using derivatives; (iii) issue different classes of shares with specific and different rights and obligations to its holders; and
- investment in non-Mexican instruments.
Although specific regulations are still under review, it is envisioned that these provisions will enhance the ability of assets managers to operate in Mexico. We consider that the most important change is the investment in non-Mexican instruments. This new authority will certainly allow and open the door to all domestic operators to participate in the market of those investments that Mexican nationals hold outside Mexico, which they were previously prohibited from doing.
Alberto J Morales