Melvin Escudero Director, Master in Finance and Portfolio Management at Universidad del Pacifico CEO El Dorado Investments Developments in the Capital Markets in South America and the Andes Stock Exchange

WHY LATAM: STRONG LONG TERM FUNDAMENTALS  Economic growth potential and favorable macro policies. Country focus: Brazil, Mexico, Colombia, Peru and Chile.  Good Population base for income growth and future consumption.  Upgrades to investment grade ratings and new free trades agreements.  Large natural resources related to commodities, energy and infrastructure.  Growth of income, consumption and savings will boost pro cyclical sectors: Construction, real estate, consumer discretionary, consumer staples, financial and debt products (ABS, MBS, private debt), health care, education etc.  Strong growth of local institutional investors driven by emerging private pension funds still in the growing stage (expected rate of growth between 15% - 25% annually). They show high levels of concentration in local markets, requiring greater international diversification and more local new type of investments (infrastructure, private debt, private equity, real estate and others).  Global interest towards Latam assets. But there are few vehicles to get exposure in the region.

WHY LATAM: STRONG LOCAL CAPITAL MARKETS GROWTH 3  Long term strong GDP growth outlook, higher than the developed world  Increase of corporate cash flows and profits  Higher demand for financing and credit (debt and equity)  Growth prospects for banking and related financial institutions lending to corporate sector (large, medium and small firms) and retail (consumption, mortgages and others)  Increase in the issues of new debt instruments like commercial papers, corporate bonds and mezzanine financing  Increase in equity requirement by new IPOs and Private Equity  Consolidation and M&A opportunities  More integration and globalization of local currency, debt and equity markets through ETFs, Mutual funds and direct investments.  The regulators will respond proactively with gradual steps to this new environment, like in the recent years  New LATAM stocks and ETFs listed in international and local stocks exchanges

WHY LATAM: NEW LOCAL PENSION FUNDS ARE THE NEW KINGS IN THE MARKETS

WHY LATAM: FUTURE IMPACT OF LOCAL PENSION FUNDS  Pension funds are highly concentrated in domestic markets and traditional assets. This will push managers and regulators to seek out for additional diversification and liquidity in other asset classes, regions, countries, sectors etc.  The increasing gap between pension funds demand (growing at a fast pace) and the limited supply of investment products will (excess demand): (i)Increase the international investment exposure in traditional and alternative assets. They are increasing the active and passive international exposure using all types of vehicles. (ii)Expand the allocation in new local investments and products like New IPOs and ETFs with domestic exposure listed in local and international stock exchanges. (iii)Open the alternative local asset classes (PE, Real Estate, Hedge Funds) and the private placement market for debt instruments like assets backed (factoring, leasing, receivables, credit cards, auto loans), mortgages backed, structured etc.  The related foreign and local market participant will benefit, like new fund managers, investment banks, trustees, market makers, brokers dealers, custodian, legal advisers, depositaries, intermediaries etc.

THE LATAM INTERNATIONAL INVESTMENTS OUTLOOK ACTUAL LANDSCAPE:  Mexico, Colombia, Peru and Chile have enormous amounts of international investments.  Mexico, is the most conservative allowing only the use of ETFs and recently segregated accounts with passive strategies.  Colombia is the most flexible.  Peru and Chile requires registration in the regulators.  Brazil is focus in local markets (for now). OUTLOOK:  The gradual diversification will continue widening (assets, countries, currencies, sectors etc.)  Access to new investment opportunities like alternative markets: VC & PE, Real Estate, Hedge Funds and others.  Increase of direct use of derivatives for hedging and efficient portfolio management  The international exposure will continue to increase (studies show that with 30% to 40% of international allocation is possible to gain most of the benefits of global diversification)

THE LATAM ETF MARKET OUTLOOK ACTUAL LANDSCAPE:  Increasing listing in NYSE: regional ETFs for equity and debt, Country equity ETFs and regional-country leverage ETFs  Mexico, the most developed local ETF market for equity and debt products.  Brasil, 2 nd market in local ETFs focused in equity products  Colombia, Chile and Peru. There’s gradual potential for local ETFs development. OUTLOOK:  Full Equity regional coverage (size and style)  New regional debt and currency ETFs  Local equity and debt ETFs in domestic currencies  Cross country listing of ETFs  New leverage ETFs  Following the Asia ex-japan development

THE LATAM VC-PE MARKET OUTLOOK ACTUAL LANDSCAPE:  Brazil is the most advanced market, especially for local GPs. It’s followed by Mexico, Colombia, Chile and Peru.  The Private Pension Funds are increasing gradually it’s exposure to domestic VC- PE. The leading market is Colombia, followed by Brazil, Peru, Chile and Mexico.  Infrastructure related PE funds have been supported by governments and regulators.  Local familiar capital structure, deal auctions, minority interest, accounting transparency, different treatment to local GPs vs. international GPs and tax treatment changes are limiting the deals flow. OUTLOOK:  The Private Pension Funds exposure in VC-PE will reach international standards in next years (around 8-10%)  The expected economic growth will create the conditions for optimization of the capital structure increasing the VC-PE deal flow and expected return.  Infrastructure, construction, retail, energy, education, healthcare and financial will be between the winner sectors.  New local and international GPs and FoF managers will take advantage of the opportunities.

THE LATAM STOCK EXCHANGES: MAIN DRIVERS  Increasing global appetite for gaining exposure in LATAM (from retail and institutional investor: looking for value and liquidity)  Growing local retail investors: saving is growing fast and they are demanding active and passive exposure  Importance of local institutional investors, lead by pension funds, are looking for new stocks (IPOs) and ETFs for diversification and liquidity  Enhance of local capital market development, the local capital markets are introducing Benchmarks, Sec Lending, Short Selling, and derivatives new markets

THE NEW ANDES MARKET – MILA (Latin America Integrated Market)  MILA – Integrated stock exchange platform for Colombia, Peru and Chile.  Stock market capitalization of MILA markets closed February at US$ $705,857 million, with a variation of 7.92% when compared with the data recorded for January. The share in the value of companies listed by market is distributed as follows: Chile 44.88%, Colombia 36.09% and Peru 19.03%.  As a common trading platform for the three Andean exchanges, MILA represents Latam’s second largest trading venue by market capitalization (US$ 706 bn) after Brazil’s BM&F Bovespa (US$ 1.5 Tn) and ahead of Mexico’s Bolsa Mexicana de Valores (US$ 454 bn).  By number of listings, MILA (544) is the largest trading venue in Latin America, ahead of BM&F Bovespa (381) and Bolsa Mexicana de Valores (427).  If Mexico joint in the next future, the MILA market cap could be similar to Brazil (US$ 1.2 tn).

THE NEW ANDES MARKET – MILA OUTLOOK  The integration is planed by phases. The 1 st one is done: Joint the trading platforms. The 2 nd one is on progress, coordinating the regulation and joint ownership. The 3 rd one will be the full integration. Expected time: 2-5 years.  The Bogota Stock Exchange planned to buy the Lima Stock Exchange. In the future probably will be one owner of the three stock exchanges.  The common or similar regulation for the stock exchanges is needed. The governments have shown interest, but the convergence will take time.  Taxes need to be similar in the three markets. Today Peru has taxes over capital gains (5%). Chile and Colombia are tax exempt.  The integration of Mexico could bring more dynamic, especially if pension funds in the three countries have similar rules for investing in the integrated market.  The governments, backed by stock exchanges and market intermediaries, are planning to continue ahead with the project.  The private sector (banks, intermediaries, legal firms, energy companies, retail businesses, asset managers have begun the consolidation of their businesses (there is a boost in M&A activity).  The private sector expectations are high. The feeling is this is going slow, but will be a real thing for sure!