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Top selector challenges Chile's status quo

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To walk a mile in another man’s shoes is often quoted as the best way to show somebody how to empathise with another’s condition. For Christian Villouta, head of fund selection for the asset management arm of Chilean bank Grupo Penta, experiencing how another man’s news is reported yields similar knowledge.

During his tenure in London, as a student and then a hedge fund manager, Villouta gained a real insight into what drives the European psyche by focusing on how news is presented and digested. He later realised this would prove useful to him professionally.

‘One thing that interests me and strongly influences my approach to global investment is my grasp of how the news is read in Europe and how Europeans view the things they see,’ says Villouta.

Challenging an insular focus

You might think the free and fast exchange of news would make it harder to become isolated from other world views.

But Villouta says when he returned to his native Chile in 2010 following an absence of just over four years, he was struck by its relative insularity.

‘It is very difficult if you are here in Chile and not travelling beyond its boundaries, because we are too self-centric. It is almost as if the population thinks Chile is the most important focus for everyone.

‘It’s a relatively small country and the opportunity for another perspective on the world has been very important to me.’

This need for a wider view of the world may sound naïve to a seasoned global investor, says Villouta, but the increasing growth of the Chilean fund industry has marked this out as a key issue.

‘It is very important for us to have people in the team, the bank and the asset management company, who understand what’s going on outside. This enables them to analyse the news within a context that creates value for our customers,’ he says.

Villouta took this philosophy with him when he was appointed by Grupo Penta in September 2010 to lead its international fixed income team.

The following summer, he rose to head of the fund selection team, a 25-strong unit overseeing $600 million in assets under management for the private banking clients of its holding company, Banco Penta.

Around one-third of this money is invested in Ucits funds, while Villouta’s team can also tap domestic mutual funds and some direct investments into stocks and bonds.

Power play: the utilities man turned fund selector

Villouta’s path to the top of the Grupo Penta fund selection unit was a varied one. He began his career in his homeland, as part of the sales division for major electricity producer Chilectra. He then progressed to a commercial analyst role within the firm. After five years at Chilectra, he decided to establish a venture capitalist business with some friends before heading to the UK to further his financial knowledge. There he studied a Masters in Finance at the London School of Business before serving for four years at hedge fund boutique Lincoln Vale. He returned to Chile as head of fixed income for Grupo Penta in September 2010 and was then named as overall head of fund selection in July 2011.

Lessons from London

In his new role within the Chilean bank and asset management firm, Villouta introduced his team to companies such as GAM and Investec, which he had encountered during his time with London-based investors Lincoln Value European Partners.

Villouta is keen to promote the lessons he learned in the UK and much of this informs his current approach. ‘I try to exercise more or less the same approach I took in Europe because there I was working on a fund and doing fundamental analysis,’ he says.

‘We looked for companies that performed well over the long term. We focused on their cashflow, strategy and what was going on in the market. When I returned to Latin America, I tried to replicate this with my team.’

However, Villouta was not the only one crossing the Atlantic in order to bring some European know-how into the expanding Chilean pension funds industry.

‘It’s been growing rapidly and there are several fund managers setting up offices,’ he says. What follows is a who’s who of new Chilean ventures.

‘You have Henderson, JP Morgan, Investec has a very good partner in Chile as well. There are also Swiss groups like GAM and Julius Baer here.’

Fund manager magnet

For a selector who is a strong believer in face-to-face meetings with potential collaborators, Villouta says this gathering of investment managers is ‘very convenient’, as they can piggy-back on the roadshows European fund managers are doing as they present to pension funds to both Chile and the wider Latin American market.

‘We are seeing it all the way through Colombia and Mexico, the asset managers are starting to do what we did here 10 years ago. It will make it very convenient for a manager to do a tour, visiting three countries in one week, he can get an overview of around $1 trillion in assets under management. I wouldn’t be surprised if more managers started to come here,’ says Villouta.

With a growing pensions market both at home and in neighbouring countries, how are Villouta and his team able to offer a unique proposition to investors? Here he again draws on his knowledge of the world beyond Santiago.

Looking further afield

Due to the risk management constraints placed on pension funds, a private bank like Grupo Penta must use the government-approved list but it can also turn to Ucits funds in wider markets.

‘For us, the most important funds are the more thematic and regional – the US and European funds. These are not very prevalent in the Chilean pension fund industry,’ he explains.

By way of example, Villouta names the Vontobel Emerging Markets Equity fund run by Rajiv Jain, as one which fits the bill – it’s beyond the realms of his pension competitors and one he became aware of during his time in Europe.

Sticking with the thematic/regional approach, Villouta also points to Hugh Young’s Aberdeen Global – Asian Smaller Companies fund and the Pioneer Funds Russian Equity strategy. The MFS Latin American Equity fund also gets a mention.

It may sound slightly counter-intuitive for a Santiago-based fund manager to employ an asset manager to invest in the Latin American market but Villouta says there are two reasons behind this – complexity and cost.

‘Chile is very expensive. The PE ratio is probably around 20-21 times 2013 earnings. This is something we found challenging – you have to see a lot of growth in order to justify such a premium,’ he says.

Therefore, investing in a fund with exposure to Latin America as a whole, Villouta says, enables him to take advantage of the differences across Latin American markets.

‘You need to look a little bit deeper at the type of companies, sectors and countries you want to be exposed to, so you need to create a fund targeting the whole of Latin America.

‘You have to be highly selective because the countries are very different and have very complicated issues. Venezuela is a gamble on Chavez’s health, for example.

‘There is no risk management policy you can apply,’ he says.

Global growth

Broadly speaking, the markets Villouta currently favours – and also tips to continue into 2013 – are those which are also seeing strong growth in the pension funds industry. This means his home market Chile, as well as Colombia, Peru and Mexico.

‘All of these countries are having the same type of economic development. They are opening up to the world, creating free trade agreements and with little government intervention,’ says Villouta.

‘But if you travel further towards the Atlantic you have the prime examples of Argentina and Venezuela, which are countries we don’t invest in because we don’t think the risk/reward profile is the right one.’

One notable absentee from his hit-list is Latin American powerhouse Brazil and, given increased efforts to reignite its economy, Villouta is cautious on its dependency on the tiller of its government.

‘We have a cautious view, because Brazil is very important in Latin America but we don’t like the government intervention in some companies,’ he says.

‘So we don’t like Petrobras and Vale. However, we like the smaller companies that have a more consumer oriented profile or are targeting internal demand.

‘There are some meat producers that are very good and some logistics companies we are invested in. In these cases you can see where the money is being created and where the cash flows are and there is no government intervention.’

Blending perspectives

Juggling his local view with a more global look at the world, Villouta is confident this mixture of styles will continue to deliver in 2013 and he is quick to champion the merits of developed market experience in a developing market economy.

This was one of the reasons Villouta encouraged a member of his team to head to the UK to finish his studying. A move which Villouta welcomed and helped oversee.

‘I try to teach all of my team to do that kind of thing by themselves. I had the opportunity to see the world from the outside and I think that was very important,’ he says.

Fantasy fund manager

Away from his fund selection life, Villouta has an interest in the alternate world of fantasy ‘sword and sorcery’ novels. ‘I like to read a lot,’ he says. ‘I am reading George RR Martin’s Game of Thrones books at the moment. They are very good and I also got captivated by the TV series. I also used to like the Tolkien books, Lord of the Rings, which were similar.’ At the opposite end to his penchant for magic and medieval themes, Villouta also has an interest in the latest technological developments. ‘Because I like to read, I have both a Kindle and an iPad. ‘I like electronic gadgets.’

This article was originally published in the February 2013 edition of Citywire Global magazine.

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