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Serving Latin America’s Wealthy, American-Style

Serving Latin America’s Wealthy, American-Style

Posted by Juan Gavasa on October 30, 2014

Mr. Pakciarz, who was born in Uruguay, managed money for big banks before he founded his advisory firm in 2007. He was a portfolio manager at Citigroup C +0.59%  in Uruguay while studying economics. Most recently, he was a managing director at Guggenheim Partners LLC’s investment-advisory business, following a stint at Deutsche Bank AG DBK.XE -2.17%  where he was responsible for investment advice and product strategy for Latin American high-net-worth clients.

At those firms, he and co-founder Rafael Iribarren met the five Latin American families who built the backbone of their Miami practice.

Mr. Pakciarz set out to introduce a new model of financial advice to wealthy families in Latin America: American-style independent wealth management that goes beyond investing a part of a family’s money. He aims to coordinate various investment portfolios, businesses, and other assets into a holistic wealth- and financial-planning strategy.

The traditional way (in Latin America) would be to work with two or three banks” that manage investments from Panama to Switzerland without a full picture of a family’s entire wealth, he says. But investing money without taking the family business into account, for example, can lead to an overconcentration of a single investment in a portfolio.

In Latin America, the business of family offices “is still very incipient,” he says.

A culture change afoot?:

He senses a larger culture change. Like in the U.S., a younger generation is taking the reins of family wealth in Latin America, with different ideas about how that money should be managed.

“This generation is...demanding transparency, independence, questioning traditional practices,” he says, adding that they would rather work with a wealth adviser rather than a money manager.

“Usually, our relationship is with the second generation,” Mr. Pakciarz says.

The practice:

BigSur added about 10 new families in the seven years of its existence, and now manages about $700 million for about 15 client families. With five advisers taking care of such a small number of clients, the level of care is even more personal than at a high-end private bank. The minimum investment at BigSur is $25 million.

Mr. Pakciarz says 80% of his clients live in Latin America. Some have migrated there from other parts of the world, and some have since moved from the region to the U.S.

How to serve Latin American clients:

Many of his clients’ needs aren’t any different than those of a wealthy family, say, from Boston: Their wealth shrinks over time because spending outpaces investment returns, and because it is divided over generations among more family members. The role of the wealth adviser is to help offset those dynamics and preserve the family’s wealth over generations, he says.

There are however, cultural differences he must contend with.

In the U.S., heirs of wealthy families tend to be equally educated and often established a structure of how to communicate with each other, how to resolve disagreements, and how to transition the control over investments.

Such family governance historically hasn’t gotten much attention in Latin America, Mr. Pakciarz notes. The focus traditionally has been on how money is invested, not how it affects a family dynamic or legacy. As in the U.S., tensions can arise when family members who don’t contribute to wealth creation--for example, by not working in the family business--demand an equal share. But in Latin America it has been more difficult to mediate these situations.

“When the patriarch dies, the communication can really deteriorate,” Mr. Pakciarz says.

The adviser recently recommended a mediator to help settle family disputes. He found a highly specialized psychologist--not an unusual task for a family office in the U.S. But the family didn’t take to a stranger coming into their family affairs, and Mr. Pakciarz ended up mediating himself.

Part of his job is to get the family patriarch to think about wealth with his legacy in mind.

Another new twist for many clients is that Mr. Pakciarz tells them BigSur needs to look at all assets--such as the family business and the mansion, and all the loans. “They are not really real-time managing their portfolio,” he says.

His way of investing:

BigSur’s investment philosophy, meanwhile, is to focus on simplicity, like the way pension funds are run. Complicated derivatives aren’t favored. “We aren’t rocket scientists,” Mr. Pakciarz says. The focus is on traditional investments like bonds, stocks, and private-equity and real-estate deals.

For example, BigSur recently bought an high-end office building in Kansas City, pooling investments from several clients. The firm is taking a third of the equity in the building--the rest will be owned by Independencia SA, a Chilean asset-management firm. “We are generally a limited partner,” Mr. Pakciarz says.

The Kansas City investment is expected to generate an 11% cash-on-cash return, an attractive rate for a Latin American investor who would have to look to much higher-risk markets, like Venezuelan government bonds, to find a comparable return at home.

U.S. investments can be “a high yielder in the world of developed economies,” he adds.

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