As Europe and the US continue to struggle their way through financial uncertainty, South America continues to offer attractive investment opportunities. The region, which has past experience of financial crises, has seen an increase in interest from international investors. This has inspired rapid growth, fuelled partly by a sharp rise in commodity exports.

“In South America we are very much used to these financial crises. Developed countries were not really used to them, so most of the people that work in financial institutions and big companies in the states and in Europe have never really dealt with these kinds of events.”

In 2010, Latin America saw a 6.2 percent growth in overall GDP, compared to three percent in the US and just two percent in Europe. Growth may have slowed in 2011 for the region, dropping to 4.5 percent, but compared to 1.7 percent and 1.5 percent for the US and Europe respectively, Latin America is proving to be a relative goldmine for global investors. In order for Latin America to continue to attract foreign investors, it is important that there are law firms that know the region well and can provide foreign investors not familiar with the region with the required knowledge.

Martin Litwak, Founding Partner at Montevideo-based law firm Litwak and Partners, feels his firm is perfectly placed to attract clients from overseas, as well as acting on behalf of businesses throughout Latin America.

Litwak says his business has a good understanding of local culture, and as such can earn the trust of its clients. Although large multinational financial institutions will often want to work with traditional, larger law firms, other more local and regional businesses would rather use a firm that knows the region, the culture and the local regulation. “If you have a huge bank or investment manager with headquarters in London, New York or Hong Long with no legal department in Brazil, for example, the decision as to which lawyers are involved would probably be made far away from Brazil, and then they would rather go with one of the traditional Anglo-Saxon offshore law firms. On the other hand, if the decision is made in Brazil or Venezuela or Argentina, then they would very much prefer to work with somebody who speaks their same language,” says Litwak.

Cultural links
He adds that law firms that are based in offshore locations like the British Virgin Islands or the Cayman Islands are less likely to have the in-depth knowledge of the country they’re dealing with, as most lawyers there have come from places like Europe and the US, with no cultural link to the region.

The firm, launched in March 2011, specialises in providing legal advice for investment funds and fund managers, but provides expertise in other areas of law such as wealth management, capital markets and corporate finance. “We are a leading investment funds practice in the region, with clients all over Latin America, from Mexico to Argentina,” says Litwak. “We also have a trust and wealth structuring department, where we set up trusts and other estate planning vehicles for high-net-worth families and family offices, as well as a corporate and financial practice where we do some M&A and corporate finance work, private equity and venture capital deals, etc. This notwithstanding, our core is really investment funds and wealth planning.”

Part of the success of the business is the unique way Litwak and Partners charges its fees. It prefers to offer a fixed rate, which it says allows both the firm and the client to know where they stand financially. “Unless the nature of the transaction makes it absolutely impossible, we only charge fixed fees,” says Litwak. “This is very unusual for a law firm. It allows us to anticipate our cash flows, so it’s a very healthy balance sheet that we have. More importantly than this, the practice allows us to align our interests with those of our clients. The fixed-fee approach is especially attractive for a fund or trust setup when we are not dealing with another law firm, so time is not wasted in correspondence or negotiation.”

Litwak and Partners’ focus is not on becoming a large regional law firm, but on becoming the best at the specific areas it works in. “We have a unique business model for the region,” says Litwak. “We are a niche, boutique law firm. We specialise in two or three areas of practice only, and in a couple of industries. Our objective is not to grow to be a massive law firm. We don’t focus on the size of the business but rather in the quality of the services we provide.” This quality has helped the firm to win an impressive amount of industry awards, and also to increase the number of non-Latin American clients on its roster.

Crisis experience
Litwak says the opportunities for foreign investors are down to the strong position Latin American economies find themselves in. “The figures of the economies in most of the countries in South America are fairly strong. The fundamentals look good. Most of these countries are exporters, and most of them are currently experiencing the best and most prosperous moment in their history in terms of the growth of their economies, the distribution of their income and the high quality of human resources.” He adds that South American economies have a great deal of experience with market troubles, and so were better placed to deal with the one engulfing the rest of the world during the last few years. “In South America we are very much used to these financial crises. Developed countries were not really used to them, so most of the people that work in financial institutions and big companies in the states and in Europe have never really dealt with these kinds of events. We have crises, with the possible exception of Chile, every seven to 10 years, so many bankers, financial advisors and lawyers have experienced two or three
crises already.”

According to Litwak, there is a great deal of opportunity for foreign investors looking to buy into local businesses, as prices have remained low: “There are always cheap opportunities in terms of investments. Perhaps prices in Brazil have grown a lot over these past few years, but in the rest of South America there are still opportunities to buy companies or assets at a good price. Certainly in terms of private equity, there are many opportunities.”

He says that South American countries can be split into two groups: those that have political stability and are open to foreign investment, and those where things are more uncertain. “With the exception of countries like Argentina, Venezuela and Bolivia, where the political situation is not really very good, most of the countries have shown to the world that they do respect private and foreign investment, as well as treaties.” Litwak adds that South American economies have seen particular growth in a number of industries, most notably mining, outsourcing, software design and tourism, as well as the usually strong agricultural industry. “Some countries, for example Uruguay,” he adds, “are also strong in financial services.”

He does warn that much of the foreign investment depends on how long the financial crisis in developed countries lasts: “If the crisis continues then there will be less resources in the market. So even though you will find investors willing to invest in Latin America, more than in the Europe or the States, at the end of the day if there are no resources there is nothing to be invested.” Indeed, a recent IMF report on the region said that although Latin American countries are greatly benefiting from the external environment, “with output near or above potential, they also need to guard against overheating.”

Working for regulation and trust
Another area that has seen significant growth within the region has been hedge funds, with 450 funds and $60bn of assets under management, compared to just 100 funds managing a total of $20bn in the year 2000. “The hedge fund industry in the region has grown since the early 90s, but certainly in the last decade the growth has been huge,” says Litwak. “Especially in Brazil, but also in Argentina, Peru, Mexico and Venezuela. These are all countries where the hedge fund industry has grown significantly and we expect this trend to continue.” Despite this growth, Litwak – who also serves as the Co-Director of the Hedge Fund Association for Argentina and Uruguay – says the industry still lags behind those in more developed parts of the world with regard to stringent regulations. “In terms of transparency and corporate governance, I think we are a little bit behind compared to other places,” says Litwak. “In any event, as at least half of the funds active in Latin America are set up offshore and they therefore need to comply with the requirements of the jurisdictions of choice, mostly the British Virgin Islands and the Cayman Islands.”

Latin America will continue to grow in the coming years, and part of this is the improving reputation that the leading countries in the region have for being stable, reliable and open markets. Providing the legal framework to aid further investment is something that requires a lot of understanding and experience. Litwak believes the unique mix of experience his firm offers puts it in a strong position. “We are close to our clients,” says Litwak. “We provide highly specialized legal advice geared first and foremost towards the clients and their individual requirements; we offer them a fixed fee which is known from day one and in addition to that we have the cultural understanding and background which are needed to appreciate the business and decision-making process specific to Latin American clients. These, among others, are the reasons why different financial institutions with operations in the region, even big ones, want to work with us … or at least let us compete for the work with the usual suspects.”