Regulators are making it easier to distribute investment products across borders in Latin America but political issues remain a stumbling block, according to Cerulli Associates.

Regulators are making it easier to distribute investment products across borders in Latin America but political issues remain a stumbling block, according to Cerulli Associates, the research and consultancy.

In its report, Latin American Distribution Dynamics 2014: Entry Points to Emergent Economies, Cerulli analyses distribution and product development trends in the six local mutual fund and pension fund markets: Brazil, Mexico, Chile, Colombia, Peru, and Argentina.

"We believe that the regional pension system and the private wealth segment continue to present global managers and ETF sponsors with the biggest opportunity for cross-border product distribution in Latin America," Nina Czarnowski, senior analyst at Cerulli, said.

"Contributions in most markets in the region are mandatory, and are, consequently, growing faster than their respective financial systems, driving the need to expand to foreign markets. Asset managers targeting the wealthy are able to take advantage of a wider range of products and strategies as the segment tends to have fewer regulatory restrictions,” Czarnowski said.

"Concerned with recent domestic market devaluation and the inability to fund workers' retirement, industry players, including pension funds and regulators, are increasingly exploring ways to generate appropriate, higher returns," Czarnowski continued.

One of the biggest challenges to cross-border fund distribution in the region, however, remains political. While pension managers and regulators see the need to diversify pension portfolios overseas, it is in the governments' best interest to keep investments local--in particular in infrastructure projects--to foster local economy and business.

"Unfortunately, conducting business in Latin American has no 'passporting' benefits. Countries in the region have different regulatory bodies that, in turn, have different sets of rules and regulations. Cross-border mutual funds offered in Peru may not be the same mutual funds accepted in Mexico. Distribution channels commonly used in Chile may not be popular in Brazil," Czarnowski said.