CONFIDENCE BOOST

Colombia 2014 | FINANCE | VIP INTERVIEW

TBY talks to Fernando Hinestrosa Rey, President of Fiduciaria Davivienda, on the growth of the trust sector, its contribution to attracting FDI to Colombia, and regulatory challenges.

What is the status of the trust sector in Colombia?

Until 1990, trust schemes were products offered by banks; in 1991, trust companies were created as separate legal entities, independent from the banks. To date, there are 27 trust companies in Colombia—four public and 23 privately owned. There are 16 with a bank as the major shareholder. Trust companies in Colombia, unlike other countries, handle two major lines of business: investment trusts, with products such as mutual funds, individual investment portfolios, and voluntary pension funds; and trust administration, with a variety of products such as payment sources, warranties, administration and payments, and real estate trusts, among others. As of July 2013, the total assets managed by trust companies in all lines of business amounted to approximately $134.5 billion, a figure close to 28% of the total assets of the financial system, and investment portfolios handled by trust companies and their businesses equaled approximately $78.5 billion, representing 36% of the total Colombian financial system investment portfolio.

What have been the company's landmark achievements over the past few years?

Fiduciaria Davivienda is a financial services company legally established in 1992 with the mission to expand and diversify the portfolio services of Bolívar Business Group. In 1999, we complemented the investment products offering by acquiring the Dafutoro Voluntary Pension Fund from Davivir PFA. In 2006, we acquired Fiduciaria Superior, including its Superior Investment Fund and real estate ventures. In 2012, we merged with Fiduciaria Cafetera, which allowed us to enter the public trust area and become one of the leading companies in the trust sector in Colombia, offering a comprehensive product portfolio to the private and public sectors. Today, we are among the top five companies in the market; we have the largest voluntary pension fund, and manage approximately $8 billion in trust assets—6% of the sector total. We differentiate ourselves from our major competitors in that we work in synergy with the Bolívar Group of companies, such as Banco Davivienda, Leasing Bolívar, Seguros Bolívar, and Constructora Bolívar, affording us great commercial strength to sell and market our products. We rely on the office network of Banco Davivienda for products requiring collections, payments, or other operations at the national and international level, and work a joint strategy with clients so the Group can offer comprehensive products for every need.

“The private sector views us as the best alternative to develop its projects with transparency and effectiveness."

How can trust companies contribute to further attracting foreign investment to Colombia?

Fiducia means trust. Trust schemes provide foreign investors confidence, security, and transparency, whether individually or through consortia or temporary alliances with national investors, they bring in their capital to participate in infrastructure or real estate projects. These projects require a trustee to manage the different resources allocated for payments required by the project and, once completed, distribute the earnings to participants. As the trust sector also provides collective investment funds and private equity funds diversified by a strong combination of assets and risk, we will have a greater influx of foreign investors in Colombia. Trade agreements are another excellent opportunity to attract new investors to the country and take trust business lines to other countries. Our group recently acquired the HSBC business in Honduras, El Salvador, and Costa Rica, and we also have a presence in Panama and Miami, which, no doubt, will allow us to attract more foreign investment to Colombia.

In your opinion, what are the challenges facing the sector in the near future?

Challenges facing the sector include: improving risk management practices; improving the management of business accounting practices by implementing IFRS so the trust business reflects all the economic facts affecting it; separating investment and administration business lines so each can be profitable and generate sufficient income over costs—in some businesses, the only income generated is through the investment of funds received, and no fees are charged for the other activities and responsibilities assumed by the trust company; promoting the financial education of non-institutional investors; creating innovative products attractive to international and national markets; ensuring efficient and effective procedures, lessening the operational load produced by the diversity of business and low standardization; and achieving greater market penetration to ensure the trust scheme is appreciated for its benefits.

Who are the company's main clients?

Our main clients are natural persons such as investors in investment funds and the Dafutoro Voluntary Pension Fund. Another important group is public entities, who have entrusted us with the management of their pension portfolios, in which we manage large amounts of resources. Construction companies are another important group of our real estate trust administration. Corporate customers and SMEs represent an important segment as users of assurance schemes, sources of payment, administration, and expenditures.

In your opinion, what is the perception of the trust industry in Colombian society?

We are a well-known industry in the Colombian financial sector for the volume of assets we handle as well as the amount of resources we manage in investment portfolios. The public sector has found a complement in trust schemes, so public institutional resources are used for stipulated purposes and, therefore, support the implementation of business in accordance to laws, decrees, and presidential directives. The private sector views us as the best alternative to develop its projects with transparency and effectiveness, especially when it requires funding and the involvement of various investors.

What is your expected financial performance for 2013 and 2014?

For 2013, we projected significant growth in investment funds and the Dafutoro Voluntary Pension Fund, while in the other business lines we hope to maintain participation with moderate increases. We are ending the year within budget projections. For 2014, we expect to participate in trust schemes required by large infrastructure projects and public-private partnerships (PPPs.) As for real estate, our goal is to reach a greater number of building professionals with state-of-the-art technology. We will maintain our synergy with the Group for the implementation of trust schemes that support our joint commercial strategy. For investment funds and the Dafutoro Voluntary Pension Fund, we expect greater growth—they will become our main products for the future.

Where do you see the company in five years time?

I foresee very interesting opportunities in the coming years. The sector is growing, and the Group has bought businesses in Central America, where the trust sector has not been formally established. We are one of the most important organizations in channeling investments between countries. The current situation in South America and the rapid development of many of its countries offer a variety of opportunities.

© The Business Year - November 2013