Este informe no está disponible en español.


Puerto Rico Shaping Up As Securities Powerhouse

$7 billion richer in the past three years, a growing securities industry can become a separate force within an already strong local financial industry


January 8, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

In the last three years, in the midst of the economic slowdown, close to $7 billion in assets shifted from local banking institutions to mutual funds, making the local securities industry the fastest growing financial sector in Puerto Rico, according to Miguel Ferrer, president & CEO of UBS of Puerto Rico Inc.

Ferrer explains that Puerto Ricans have embraced the trend, which took place in the U.S. over 20 years ago, where investors ceased to be merely savers and increasingly became investors. Local sales of securities for the first nine months of 2003 reached $30.7 billion, already up 50% compared with $21 billion for all of 2000.

Although this transfer took place mostly in response to lower rates offered by banks, Ferrer points out that this growth was only possible because of the maturity of the Puerto Rican investor.

He describes the local securities industry’s growth as phenomenal, outperforming the larger banking industry. Ferrer feels that the growth in the banking industry has been largely fueled by easy access to brokered deposit funds and the issuance of preferred stock as vehicles to raise capital.

"The 50% growth rate of our industry of the last few years can be traced to the Faria / Padilla tenures as commissioners of Financial Institutions," said Ferrer. UBS of Puerto Rico’s own mutual funds registered an increase of $5 billion in the last three years. On top of this, the company manages an additional $2 billion in mutual funds issued in conjunction with Popular, Inc.

Ferrer’s projection is to reach the $10 billion mark in mutual funds sales within the next three years, with fixed income funds leading the way. UBS of Puerto Rico presently holds $10.8 billion in investor’s funds (retail accounts) and $18 billion in retirement and managed funds.

Adding to his own numbers and healthy projections, Ferrer believes that there is plenty of room to grow locally, especially in view of the $100 billion a year ‘exported’ by Puerto Rican investors to the U.S. mainland.

There are presently individual and large institutional investors placing their securities purchases directly into the U.S. mainland seeking to leverage returns by lowering dividend tax liabilities. According to Ferrer, local retirement funds alone place $20 billion in investments outside of Puerto Rico. He points out by comparison that this amount is greater than all the 936 funds invested in Puerto Rico in the past during any given year.

Looking at these figures from another angle, according to Ferrer, island source funds are helping to finance the federal deficit with no returns to Puerto Rico’s economy. In Ferrer’s own words, "Local investors need to be lured back to investing in Puerto Rico’s economic growth through proper incentives."

Besides his leadership role at UBS, Ferrer also serves as President of the Securities Industry Association. Through this trade group, he has been actively seeking legislation that can propel the kind of investment environment necessary for the island. Although he believes that the Puerto Rican investor, unlike his U.S. counterpart, is better serviced with access to products in both tax jurisdictions, Puerto Rico and the U.S. mainland, Ferrer is also aware of the need to become more competitive to make the securities industry an expanding vehicle for Puerto Rico’s economic development.

Help seems to be on its way with major legislation already approved in the area of insurance. Soon, local issuance of variable annuities at competitive tax rates will be available for sale on the island with anticipated projections of $500 million a year market value. UBS and Universal Insurance have been at the forefront of the variable annuity initiative planned to provide an unrestricted investment and retirement instrument to Puerto Rico investors.

Other expected legislative reforms benefiting this new market, would come from the anticipated exemption on inheritance and annuity tax, and the proposed Real-Estate Investment Trust legislation scheduled to provide a strong incentive for local real-estate initiatives.

Despite all its economic development progress throughout the years, Puerto Rico has not been able to achieve a recognized status as a regional financial center. "We are not short on money; we just need the right vehicles. Our jurisdiction can provide financial infrastructure, capital and fiscal autonomy," said Ferrer. "There is no reason to stop Puerto Rico from reaching that status before Miami, Panama, or even Cuba."

This Caribbean Business article appears courtesy of Casiano Communications.
For further information please contact

Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback