Luma Insights:

Technology Driving Structured Product Growth in Latin America

Q&A with Fernando Bambach, Latin America Account Manager at Luma Financial Technologies

Luma’s Latin America Account Manager Fernando Bambach established himself with some of the biggest names in the finance industry from the outset of his career, and has been watching the ups, downs, and trends that go along with it. When he joined Luma Financial Technologies in 2020, he brought his in-depth knowledge and experience with structured finance and complex financial products to our clients, as well as a keen eye for identifying the factors that are affecting the industry overall. Read more about what Fernando is seeing develop in the Latin American markets as well as across the globe when it comes to structured products and how technology is playing a role!

How has the demand been for structured products in Latin America throughout the COVID pandemic?

From my conversations with clients, the demand for structured products has increased dramatically across the Latin America region during the past year, with many players that have not been active in the space before starting to dip their toe into the water. This is great for our business, as many investors are reaching out in search of the proper resources and capabilities to transact in the asset class. Our platform provides a turn-key solution to get these investors started in efficiently transacting structured products. I do not attribute this increase in demand strictly to the COVID pandemic, but more so to the low-rate environment that continues to challenge investors.

Does demand vary per region? Are advisors in specific countries more likely to use structured products in their client portfolios?

Yes, structured product demand varies very much by region in Latin America. More sophisticated financial markets use structured products more frequently than less sophisticated ones. I would say there are two distinctions: the regulated markets and non-regulated markets. Products bought onshore in Brazil and Mexico must be registered at CVM and Indeval, respectively. Because of this, tickets are smaller and more attractive to retail investors. In the other markets, structured products are more of an instrument for sophisticated high-net worth individuals. What also changes a lot among regions is the type of products being used. For example, while CLNs are very popular in Brazil and Mexico, coincidentally the same markets that tailor to the retail client, they are barely used in the other markets of Latin America.

What major headwind has hindered the adoption rate of structured products among Latin America investors?

Transparency. Structured products have historically been misunderstood due to the lack of available resources and tools needed to educate investors and modernize what has long been a manual investment process. This is exactly why Luma came into existence. Our platform not only brings enhanced transparency by providing an under the hood view on pricing structures and risk analytics, it also provides simplified access for investors seeking to learn, shop, customize, transact, and monitor products, all from one centralized location.

How does Luma help streamline the structured product investment process for financial advisors?

Idea generation, best execution and book management. Through our Creation Hub tool, advisors can mix and match hundreds of different payout structures, with their corresponding analytics, to find the most suitable solution for a client. At the same time, Luma gives advisors access to all the important players in the street, thus guaranteeing for that particular structure, tenor or underlying, the advisor is closing with the most competitive issuer out there. Finally, better book management means more business. Our Lifecycle Manager provides appropriate tools to holistically manage a book, such as post-market analytics, analytics of the book as a whole, and access to secondary markets. We’re making it easier than ever for investors to use these products in their clients’ portfolios.

Do you see technology as being the game-changer in the structured product marketplace that has long been lacking? Where does Luma go from here?

I do. And to use a fitting analogy, what we intend to do follows the same concept as Robinhood’s approach to bringing stock trading to retail investors. The gamification of trading, increased accessibility and zero cost to invest in stocks has created a resurgence of retail investors. We do not want to encourage gamification, but we do want to embrace Robinhood’s top quality: ease of access. We also believe that by democratizing structured products we will be lowering the overall cost to investors. Where we go from here, and what Luma is currently working towards, is a world where investors can transact bespoke deals that complement their portfolios. Furthermore, thanks to our market share in the US market and growing market share in Latin America and Europe, we are working on becoming a marketplace for secondary transactions which will add more liquidity to the system. In summary, more transparency, lower transaction costs and an increase in secondary market liquidity, will continue to catapult the volume of structured product transactions through our platform.