Independence and flexibility are the words Mario González, Head of Iberia, US Offshore & Latam at Capital Group, repeats most often when detailing the firm’s business strategy. González observes that clients are increasingly leaning toward working with fewer firms, expecting them to become more involved in aspects that extend beyond capital management.
In this interview with Funds Society, he highlights the growth potential that the Iberia, Latam, and US Offshore regions hold for Capital Group, as well as its expansion plans in alternatives and ETFs.
Interview
You have consolidated the transition toward new leadership at the firm. What momentum is Mike Gitlin bringing to Capital Group’s project?
Mike has been CEO for three years. He was previously our head of fixed income and has been with Capital Group for about 10 years. He transformed our fixed income business significantly, doubling its assets: we went from roughly $250–300 billion to over $600 billion today. For us, leadership changes are a natural process. We are in our fifth or sixth generation of leadership. We are independent, a partnership. This type of process impacts our business far less than it does our competitors. Mike has introduced a very clear commitment to the business outside the United States, alongside a sharp focus on the client, who increasingly wants to work with fewer managers and under a partnership format.
I think Mike has identified this trend very well: becoming what we call a “partner of choice”—that is, moving beyond being a mere vendor to build a close relationship with the client. Clients value having relevant strategies, but they are paying more and more attention to the value proposition outside of investment. In our case, we have reinvested in advisor education, for instance: helping our partners make their advisors more efficient, navigating major shifts in their business, and investing in tools… I believe these are major vectors that Mike has led.
In this context, what role do Iberia, US Offshore, and Latam play?
A very important one. We have a series of markets outside the United States—around 12 to 15—that are fundamental to our expansion, and these three are part of that group. Both Spain and US Offshore are highly consolidated markets. In Spain, we work with all the major distributors, and they increasingly view us as a partner rather than just a fund provider. The mandate with CaixaBank for its advisory business is one example. The team in Spain has grown; we are now 10 people. We rank among the top 10 brands, and even in the top five across certain metrics.
Regarding US Offshore, it is a very different market, but one with strong cultural and business ties. We see major banks in Spain and wealth managers expanding their teams dedicated to Latin American clients. It is a business increasingly concentrated in US Offshore, purely advisory-focused. We have a team of 10 people with a presence in Miami, New York, and Texas. While many of our competitors are cutting resources or changing distribution models, we are growing and reinvesting. In US Offshore, vehicle flexibility is essential. Ultimately, advisors in the United States have a portion of their business dedicated to offshore clients and another increasingly bulky domestic portion, and we offer investment solutions for both sides. When it comes to vehicles, flexibility is on the rise as demand grows for UCITS funds on the offshore side, or SMAs.
The Latam division is newer. In Mexico, Chile, Brazil, etc., we started at the end of last year in a very strategic manner. Capital Group often arrives late to markets—Spain is an example—but when we enter, we do so with a very long-term commitment. Here, we are heavily focused on three segments: institutional—the Afores, the AFPs, that is, the pension world; second, wealth management, with a strong presence from our global partners, where we maintain strong relationships with Santander, BBVA, UBS, and HSBC; and third, central banks and sovereign wealth funds. We have a strong focus on Mexico, which is structurally a very interesting market, particularly the Afores segment. We are also closely following the pension reform in Chile.
In which of these areas is there the most capacity for continued growth?
We have significant growth capacity across all three regions. In Spain, we have grown very consistently over the 12 years we have been in the market, but we believe there is increasing consolidation, and structurally, we are very well positioned. Another positive aspect of being independent is that we face no distractions. Many of our competitors have to focus on the next dividend or hitting short-term figures… That is not our case. If you lack scale, corporate transactions will occur, but we possess stability, independence, and scale, which provides us with a strong growth platform.
In Spain, we can and should keep growing within this partnership environment through new capabilities. Recently, the alliance with KKR in hybrid funds within the alternative investment space served as an example of innovation. In the future, we might bring over our active ETF range, which has seen immense success in the United States. And in Offshore, it is the same story: we continue growing and reinvesting. It is a very interesting region because it is strong in areas that Europe lacks. Speaking of the pension world, Mexico has a very solid model that serves as a benchmark for the region and other parts of the world. Latin America, in a selective manner, is very attractive to us; it is all about growth.
One of your most significant moves has been the agreement with KKR in private markets. How has this private credit and equity offering permeated the market?
It is a new asset category. We were the first to announce this type of alliance with an alternatives firm—in our case, KKR—and it is the first to translate into concrete products. We started in the United States, where we launched two public-private products focused on debt, and more recently, one focused on equity. Now, we are bringing this proposition to the international level.
Clients are attracted to the idea, but we need to work with them so they understand the role these solutions play within portfolios. It is not a pure building block they are traditionally accustomed to. What we offer is a first step for clients entering the alternative space. In the United States, distribution is much simpler because the vehicle can be distributed nationwide. In Europe, the landscape of vehicles and regulation is somewhat more complex. Nevertheless, strategies that take a holistic view of the entire debt market—both private debt and public debt—will become much more widespread in the market going forward.
And what type of underlying asset is the local buyer demanding most?
There is significant concern about market concentration, which is sparking very interesting debates. Whether passive management is the best way to gain market exposure is a question we frequently discuss with our clients globally. We see clients in certain asset classes—for instance, US equities—where that concentration is even more pronounced, and they are beginning to realize that high-quality active management can be compelling. Not all active management is good, but high-quality active management in the current market environment can be very attractive. There is exposure to equities, US equities, diversification outside the United States, increasing interest in European equities, and emerging markets could potentially be the next major growth engine. In short, we are seeing strong demand.
Fixed income is once again providing diversification and income, meaning we observe interesting opportunities despite tight pricing. On the credit side, for example, we detect significant demand. Even in emerging market debt, which began strategically in the institutional space, it is now permeating private banking and wealth management, where it is starting to be viewed more structurally in portfolios. We are also seeing interest in blend strategies.
Has it been straightforward to introduce these hybrid vehicles into US Offshore wealth management structures?
We are in a phase of working with our clients to understand the role these vehicles can play in portfolios. Conceptually, however, the idea is very attractive. The vehicle structure also dictates which clients can access these types of products. These funds are structured as UCITS Part 2, meaning they require professional clients. Within that universe, adoption has been good, though we are in the early stages of these efforts, making the educational component highly relevant.
Midway through this year, there were efficiency adjustments in the European product lineup. What drove this decision?
We aligned our resources more efficiently. We do this periodically every 10 to 15 years. We review our product offering to ensure it remains efficient and aligned with client demand. For us, launching new strategies or altering existing ones is a rare occurrence. When we consider launching a product, we evaluate whether it will see demand 5, 10, or 15 years down the line. A similar logic applies to closing a fund. In the United States, our fund mortality rate is close to zero. In Europe, it is also quite low. This does not mean we do not innovate, but we focus on areas of the portfolio where we have deep expertise. Innovation is targeted. That is how we have grown over nearly 95 years: completely organically.
You reached $150 billion in active ETF assets under management in four years. Has this growth come from fresh capital?
We launched our active ETF platform on February 22, 2022, the day before the invasion of Ukraine. It has been a success. We rolled it out in stages. Today, we have 25 active ETFs, the vast majority of which—about 21—have over $1 billion in assets. It is almost entirely fresh money. We launched active ETFs in response to our clients. Some were advisors, primarily in the United States, while others wanted access to our strategies via the ETF wrapper. Almost all of it is new money—I would say over 80% of the assets under management in these products. We have added more than 50,000 new advisors in the United States who are buying our active ETFs.
Our partners, especially global ones, ask for flexibility in our strategies, so we decided to provide access to them through different vehicles. It was with that philosophy that we launched the active ETF platform. We also introduced structural innovations, such as our liquidity program. Furthermore, new client segments are coming aboard. In Mexico, for example, Afores are now permitted to invest in active ETFs, meaning institutional clients are paying attention to these vehicles. In Canada, we also have an institutional client expressing interest.
Are there plans to adapt this system to UCITS products?
We are currently exploring how to translate this offering outside the US market into the UCITS framework. We view this as something we must offer our clients over the medium to long term to gain market share in Europe and attract Latin American investors who prefer this format—all while offering flexible solutions to our clients in Europe and Asia. Looking ahead 5, 10, or 15 years, we believe active ETFs will play an important role outside the United States as well, and we want to be part of that growth.
Active ETFs in the European market represent an attractive segment over the medium and long term. We may not directly compare it to the trajectory in the United States, as every market and regulatory framework is distinct. There is significant reliance on regulatory developments, but initiatives like the EU’s Savings and Investments Union (SIU) could boost the adoption of these vehicles.
The launch of model portfolios composed 100% of active ETFs was a direct response to US RIAs. Are the Spanish and Latin American markets mature enough for distributors to delegate asset allocation to white-label model portfolios?
In the US market, we are seeing an increasing application of model portfolios, though perhaps not as extensively as in Spain. It offers numerous advantages, the most prominent being resource efficiency, allowing private bankers to focus on managing client relationships and acquiring new business while leaving investment implementation to specialized teams. This introduces a valuable level of specialization and industrialization.
In US Offshore, major American wealth managers are driving this model portfolio model forward, and adoption among bankers is growing incrementally. This represents another global trend we observe, not just in Spain. Another major shift worldwide is the migration toward Discretionary Portfolio Management Services (DPMs).
This shift seeks industrialization, standardized outcomes, regulatory risk protection, and better margins. The second trend within the advisory space is the movement toward model portfolios. Ultimately, three models emerge: the move toward independent advisory, transitioning clients to DPMs, and shifting to model portfolios. These three dynamics are unfolding across all markets with varying intensities. These shifts alter client requirements, introducing demand for greater customization. It is a very dynamic period, and one where we intend to compete actively.