Hidden potential: why wealth firms are popping up in Paraguay
For a long time, ‘What’s the point?’ was reason enough to give up on a plan to open a wealth management firm in Paraguay.
That’s not the case anymore. That market, shunned until now, has become an attractive destination for regional wealth management firms, given its fast growth rates in the past decade, as well as its business- and investment-friendly laws.
Against this backdrop, interest in the South American country has become evident. This year, Uruguayan firm Atlantis Global Investors opened its first office in Paraguay, and a few months later Gletir Corredor de Bolsa, also from Uruguay, announced its intention to enter the market. Puente, a group founded in Argentina that has operated in Paraguay for a while, doesn’t regret having set up there.
‘[When we arrived], we realized the growth potential that even today, four years later, it still has. In fact, we consider that it is the Latin American market with the highest growth potential, at least in percentage terms,’ says Patricio Fiorito, CEO of Puente Paraguay.
In the last years, Paraguay’s GDP growth clip of 5% was faster than its neighbors’ and the country’s poverty rates plummeted, according to the World Bank. Paraguay’s development has helped strengthen the country’s institutions, which fosters investor trust, says Atlantis president Miguel Libonatti.
In addition, Paraguay has a ‘reasonable’ tax burden, Fiorito says, with value-added taxes coming in at 10% at most. Moreover, Paraguayan residents are free to take their money offshore, which makes it easier to invest abroad.
For all these reasons, Fiorito says, Paraguay has established itself as an ‘exceptional business platform’ for entrepreneurs from neighboring countries such as Brazil and Argentina.
‘Paraguay presents itself as one of the freest markets in the Americas, where you can do business as long as they’re good and profitable,’ Fiorito says.
This business boom attracted the regional wealth management industry. Puente, for instance, initially set up shop in Paraguay to offer wealth management, brokerage and investment banking to its clients from other countries looking to do business in the Guaraní territory. However, the firm found something it wasn’t expecting.
‘We came here precisely for our Uruguayan and Argentine clients. But in reality we were surprised, and we didn’t see in any business plan what we found, which was a sector of Paraguayans barren of the type of products we offer,’ Fiorito says.
Paraguay only has between five and eight local brokerage firms, which aren’t authorized to buy and sell assets in foreign markets from their onshore accounts.
This benefits firms with a presence abroad, as they can open accounts through their foreign affiliates instead of having to operate through intermediaries.
In line with international trends, middle- and upper-class Paraguayans who used to manage their money through offshore international banks have started demanding onshore advisory services for both their local and foreign investments, Fiorito says.
Paraguay presents itself as one of the freest markets in the Americas
How about the locals?
Despite its potential, Paraguay’s financial industry is quite incipient. For example, electronic stock trading isn’t available in the country, says Federico Callizo, vice president at a local brokerage called Investor.
That means investors who want to trade stocks have to take the physical certificate to the local exchange, a process Callizo categorized as ‘tedious.’ These limitations restrict the product offering of local players like Investor, which in turn slows down the growth of the Paraguayan advisory industry.
The country is moving forward, however. Investor, for example, is launching a product that should be the first closed-end fund to trade in the local exchange, Callizo says.
Puente, meanwhile, is looking for authorization to become Paraguay’s third asset manager. If approved, the firm would launch money market funds and local-currency fixed income funds, among others.
On the international investment front, Callizo says Paraguay’s government is considering allowing local brokerages to buy international assets from their onshore accounts.
Given the possibilities, Fiorito suggests that Paraguay’s upcoming challenges aren’t deficiencies, but rather growth opportunities.
‘Paraguay has established itself as an island in the middle of South America, in the middle of the Southern Cone, which we understand still has a lot of potential and a lot of room to keep growing,’ he says.