“Rich Mexicans Are Fleeing to Miami and Funneling Money Overseas” says Michael O’Boyle from Bloomberg
Two years into his campaign to crack down on rampant tax evasion and corruption in Mexico, President Andres Manuel Lopez Obrador is scaring the rich into shipping their money abroad.
The very first signs of this capital flight date back to the run-up to Lopez Obrador’s landslide electoral victory in 2018, and they mounted after he implemented new laws against tax evasion late last year, according to interviews with a dozen wealth managers, tax advisers and bankers. Now, the populist president’s response to the pandemic — in which he’s refused to provide fiscal stimulus to shore up the economy and sharpened his rhetorical attacks on wealthy Mexicans linked to past administrations — is adding to the exodus.
“The phone does not stop ringing from Mexico,” said Miami-based Philippe Stiernon, founder of ROAM Capital, which helps U.S. private equity firms raise money in Latin America. “Every day you hear of a new Mexican family moving to Miami.”
While much of the evidence is anecdotal, there are several data points that highlight the scope of the trend: Mexicans poured almost four times as much money into overseas portfolio investments last year than they had in 2018; real estate prices in the capital’s affluent neighborhoods have tumbled this year; and domestic investment has fallen in 17 of the past 18 months — an alarming trend for an economy that will need capital to recover from the virus.
In many ways, of course, Lopez Obrador’s crusade makes sense. Mexico is one of the more corrupt and unequal countries in the world, and it has the lowest tax collection rate of all 37 nations in the Organization for Economic Cooperation and Development. People were reluctant to speak of their fears, but to hear wealth advisers tell it, the concern isn’t so much that their rich clients will have to pay higher taxes but rather that AMLO, as everyone calls the president, will use the campaign to unfairly target them.
“Some of my clients were pretty big supporters of the opposition,” said David Lesperance, a tax and immigration adviser in Poland who helps the world’s wealthy flee regimes that target their fortunes. “They are worried about retribution from AMLO’s attack dogs” at the nation’s tax agency.
Lopez Obrador’s press office didn’t respond to requests for comment, nor did the Finance Ministry.
With the coronavirus crisis worsening — Mexico this week surpassed Italy to have the fourth-most deaths in the world — more money may leave. One of Lesperance’s clients had been quietly planning to escape to Europe when the pandemic exploded. He put that plan on hold as cases rose in Europe and fled to Canada, where he could most quickly get a visa and access to health care, and is telling friends and family to follow.
Lopez Obrador, who built his career decrying inequality and corruption among the nation’s elite, has little patience for criticism of his crackdowns. He has railed against conservative critics who he said want to label him a danger for Mexico who will replace budding democracy with autocratic rule. He has told everyone to calm down and insists he is not going do anything more radical than what he laid out in his presidential campaign.
‘Lot of Fear’
Capital flight, to be clear, is not a Mexico-exclusive phenomenon right now. The pandemic, and the economic collapse it’s sparked, have led investors to yank money out of countries across all emerging markets. The peso, down 16% this year, is one of dozens of currencies to have declined in value against the dollar.
But Lopez Obrador’s tax laws, passed in October, have made those outflows more pronounced in Mexico. The crackdown is now accelerating, with major companies including Wal-Mart de Mexico SAB hit by fraud charges, and some wealthy Mexicans worry their assets could be seized or they could be thrown in jail.
“You have all these political attacks on the wealthy, and that is creating a lot of fear,” said Salvador Juncadella, director of business strategy at Boston-based investment adviser Twin Focus, which is seeking to capture clients from Mexico and other countries in Latin America.
Rich Mexicans are increasingly moving their family office operations to U.S. cities like Miami, Boston and New York, according to Juncadella and other advisers, some of whom asked not to be named speaking of client actions. Four of them said at least 20% of local wealth-management accounts have moved abroad since 2018.
Mexicans have long been easily rattled and quick to move wealth overseas at signs of economic or social crisis. Alejandro Garza, chief investment officer of Aztlan Equity Management, said most of the family offices he knows around the industrial hub of Monterrey have long since shuttled money abroad, including when a drug war shook the city a decade ago. Clients retreated even more as Lopez Obrador’s rise became inevitable, with some drawing comparisons to Venezuela, where the socialist government has seized assets and left business in disarray, he said.
AMLO runs “an anti-business, very antagonistic government that is trying to use this perceived clash between the wealthy and the poor as a way to sustain his popularity,” Garza said.
Now the money is flowing elsewhere, with portfolio investments outside of the country rising nearly four-fold last year to $5.6 billion, according to central bank data. And Mexico City’s most exclusive areas have seen a “significant slowdown,” in real estate demand, said Mario Gamboa, founder and chief executive officer of data analytics firm Intelimetrica. Prices for high-end homes in upscale neighborhoods fell about 20% this year, according to the company.
Diego de la Mora since 2016 has helped run a $200 million fund for Canadian institutional investors seeking to buy Mexican real estate. Then investment opportunities dried up. Now, he’s putting together a fund that does the very opposite: allows Mexicans to invest in Canada, specifically in commercial property such as apartment blocks, retail and industrial buildings.
“People are very nervous about what Lopez Obrador could do,” De la Mora said. “They are asking ‘where can I protect my patrimony where this guy cannot touch it?’”
by Michael O’Boyle for Bloomberg