BlackRock, in mid-July, launched the first exchange traded fund (ETF) in Colombia, the iShares Colcap ETF, tracking the Colcap index of the 20 most liquid stocks listed on the Bolsa de Valores de Colombia (BVC).
It’s turned to Citi for local custody, asset servicing, fund administration and accounting. “In just two months we corralled $700 million, much from Colombian pension plans,” says Daniel Gamba, CEO of BlackRock Latin America and Iberia.
“We add this new fund to our local ETFs in Mexico, Brazil, Peru and Chile,” he notes, adding that he is in talks with Brazilian pension plans interested in investing in ETFs. “At the beginning of the year, seven pension plans wanted to invest in ETFs, and by early October, we were dealing with 20 of the largest pensions in Brazil.”
Pension plans are more tightly regulated in Latin America than in Europe or the U.S., says Gamba. “And regulators restrict what they can buy, but of late long-only ETFs are being accepted as a legitimate investment for pension plans. This marks a change from the countries’ fixed-income emphasis.”
“We work with Citi as custodian due to its local presence in Latin America [Citi is in eight countries there—Mexico, Brazil, Peru, Chile, Colombia, Argentina, Panama and Venezuela]—coupled with the respect it’s gained by Latam governments,” he explains.
Says Jeffrey McCarthy, director and global head of ETF products: “Over the past several years, Citi has played an active role in the expansion of ETFs in Latin America. Our longstanding regional relationships and local custody and trading expertise have given us an edge to deliver solutions to support ETFs across the region, including products domiciled in Mexico, Brazil and Colombia.” McCarthy’s group is under the umbrella of Global Transaction Service’s Securities and Fund Services in New York.
He adds, “With the increased changes in local regulation, including changes in pension investment regulation and increased product awareness, we remain optimistic on continued ETF growth across the region.”
And elsewhere. For example, one of its fixed-income indices is used for the Invesco PowerShares Chinese Yuan Dim Sum Bond Portfolio, the Citigroup Dim Sum (Offshore CNY) Bond Index. In early August, Citi set up a new business to service the fast-developing ETF market in the Asia Pacific region called Citi ETF Services. “This is the fastest-growing region for ETFs and we’re providing a single channel for clients looking to launch ETFs within the region,” says McCarthy.
Among the services are creating integrated solutions for issuers, combining market making, seed capital, administration, custody and accounting—end-to-end servicing for ETF issuers, he notes. ETFs are one of the fastest-growing financial products globally.
“Index providing is a smaller business; we’re primarily focused on developing back-office functions, although we are an authorized participant through our broker arm and a market maker,” McCarthy continues. “We constructed ETF practices aimed at providing liquidity, as well as offering integrated ETF platforms for various third parties.”
Citi has put a greater focus on the ETF industry over the past two years so that it is able to work with the likes of BlackRock to support its ETFs in such far-flung spots as Latin America.
Citi has a mature business in ETF trading, notes McCarthy, but its primary focus is on investor solutions, such as front-, mid- and back-office functions, and such services as securities lending programs. “We support issuers, intermediaries and investors,” he says, “building solutions across continents.”
