The struggling Argentine economy has notably affected the wealthy population in the region. However, a recent report from WealthInsight indicates that although HNWI numbers have dropped, there are reasons to be optimistic for the future, with a more prosperous environment forecasted for HNWI growth. John Schaffer examines the findings
According to a report by WealthInsight, Argentina’s high net worth individual (HNWI) population decreased by 3.4% in 2015, following a 3.9% decrease in 2014. Yet the report also forecasts a 15% HNWI population growth by 2020, reaching 34,704.
Argentina’s economy has faced a slew of challenges of late. Independent estimates suggest that the annual inflation rate is approaching 40% – the highest rate in Latin America apart from Venezuela. The country’s largest trading partner, Brazil, is also suffering from its deepest recession since the 1930s, alongside political uncertainties. The International Monetary Fund (IMF) forecasts that Argentina’s economy will contract by 1% in 2016. However, it also predicts growth of 2.8% in 2017.
There are some reasons to be optimistic. Argentina is returning to international capital markets and its government believes that this will prompt investment from foreign companies. Since President Mauricio Macri took office in 2015, international companies such as Dow Chemical, American Energy Partners, Coca-Cola and Fiat Chrysler have invested in the country.
Argentina’s wealthy population is significant. There were 30,825 HNWIs in Argentina in 2015 that collectively held $117.6bn in wealth. The HNWI wealth is projected to grow by 19.6% in 2020, to reach $132.4bn.
Private banking landscape
During 2000-2014 Argentina’s economy was characterised by financial uncertainty. The private banking sector remained stagnant as the demand from HNWIs suffered due to a reduction in their numbers.
Private banking in Argentina is dominated by local private banks such as Banco de Galicia y Buenos Aires, Banco Marco and Branco Frances.
Among the foreign players, Itau Private Bank and Banco Santander Rio are the largest.
Asset allocation trends
According to WealthInsight’s report, real estate was the largest asset class for HNWIs in Argentina in 2015, with 31.5% of total HNWI assets, followed by equities with 20.8%, business interests with 14.9%, cash and deposits with 12.2%, fixed income with 10.7, and alternatives with 9.9%.
Alternative assets held by Argentinean HNWIs increased between 2011 and 2015, from 7.1% of total HNWI assets to 9.9% of total HNWI assets. Over the same period, HNWI allocations to commodities decreased from 2.2% of total HNWI assets to 1.9% of assets.
WealthInsight expects allocations towards commodities to increase over the forecast period, to reach 2.1% of total HNWI assets by 2020.
Hedge funds, real estate investment trusts, private equity, structured products and derivatives collectively constituted 4.2% of total HNWI assets in 2015, while also representing 59.1% of alternative assets. These allocations are expected to increase to 7% and 70% respectively in 2020, while total alternative assets are expected to increase to 12.2%.
Although real estate is the most popular asset class for the Argentine wealthy, HNWIs decreased their property holdings during the review period, from 54.5% of total assets in 2011 to 31.5% in 2015. Much of the decrease was recorded in residential property; falling from 40.1% to 21.4% of total assets. Real estate holdings are expected to comprise around 13.4% of total Argentinean HNWI assets by 2020.
Home and away
Argentina’s HNWIs held 36.2% ($42.6bn) of their wealth outside their home country in 2015. Foreign asset holdings are expected to further increase to $54.2bn by 2020, accounting for 40.9% of the country’s total HNWI assets.
Latin America accounted for holding 54% of Argentina’s HNWIs’ foreign assets in 2015. This was followed by North America with 20.7%, Asia Pacific with 13.2%, Europe with 8.4%, Africa with 2.4% and the Middle East with 1.2%.
HNWI allocations to Latin America increased rapidly compared with other regions during the review period, rising from 47.8% in 2011 to 54% in 2015.
WealthInsight expects Argentina’s HNWIs to increase their level of investment across Latin America going forward, to reach 57.6% of foreign HNWI assets by 2020.