In this English translation of an article first published in Spanish in Bancos y Seguros NBS Magazine, our Argentina experts look at the prospects for financial trusts in 2015.
Developed and operating since 1995, Financial Trusts (FT) have become a good alternative for financing and investment purposes in both, local and international markets, proving to have had an important growth in amounts and issues.
The difficult economic situation plaguing Argentina since the beginning of 2014 - with the devaluation of the local currency, the increase in interest rates and the recent application of interest-rate caps in personal and pledge loans - have generated great concern.
According to Juan Pablo Fernández Ranvier from TMF Group: "In the beginning of 2014, the market came to a standstill due to the devaluation. There was a clear difficulty in placing their products at high interest rates versus other instruments which possessed greater liquidity."
Nevertheless, the FT and the agents involved were successfully able to adjust and the market has continued to function at a normal pace. The majority of the chosen trusts were short term with securitisation of credit portfolios.
Juan Pablo Fernandez Ranvier reassured: “The market always adapts and the interest rates are adjusted to certain levels. Current difficulties created uncertainty, this created two-three weeks of sudden standstill but the market adjusted and continues to function successfully."
Regarding the outlook of what remains of 2014, specialists agree that it is unlikely that the FTs will have the same outstanding performance as the previous year and the market will be closely linked to the changing monetary policy, but assure that these instruments will not lose their importance. Juan Pablo Fernandez Ranvier is confident that, unless there is a specific event that originates a radical change in this situation, FT will continue to be the primary way of financing.
According to specialists, the current circumstances open the possibility for trusts integrated by other underlying assets type to gain importance. Florencia Regueiro from TMF Group mentions "invoices, checks and some flows of exports from dollar linked agricultural exporters, and FTs on leasing and pledge portfolios, which have interest-rates near the cap rates established by the new regulations”. Other FTs underlying assets are related to Construction and Real Estate.
As outlined above Financial Trusts continue to be most active among institutional investors, funds, insurance companies and financial entities. The challenge of the Argentine capital markets lies in attracting retail investors and all of us in the market have a lot of work ahead in educating and informing. Because of the countries historic severe economic vicissitudes, people tend to use time-deposits because of the lack of "investment culture".
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