Portugal’s resurgence from the economic crisis over the past few years has been nothing short of extraordinary.
As recently as 2011, Portugal required a €78-billion bailout* from the European Union and the International Monetary Fund (IMF).
Since 2013, the country has been on a steady track to economic recovery. Driven by higher inflows of foreign capital and a flourishing tourism and real estate sector, GDP per capita has grown from €16,283 in 2013 to €18,736 as of year-end 2017. Investments have increased by 9.2% in 2017, according to Focus Economics, and industrial production is also on a path to solid growth, with a 3.9% increase in 2017.
The labor market dynamics have significantly improved, with the unemployment rate falling from 16.5% in 2013 to 9% last year. Consumer confidence has soared in recent months, while inflation is still contained at 1.6%.
For some perspective on the situation in Portugal, we spoke with Ulugbek Suyumov, CFA, founder and president of CFA Society Portugal, about how the financial sector has contributed to Portugal’s recovery and what opportunities he sees for finance professionals in the new economy.
For further insights on these questions, CFA Society Portugal will be hosting the forum “Asset Owners: New Trends in Manager Selection and Performance Evaluation,” on 26 June 2018 in Lisbon.
What follows is a lightly edited transcript of our conversation.
CFA Institute: You are one of the first charterholders in Portugal and a leading agent in creating CFA Society Portugal in 2013. Can you talk a bit about your background and how the idea of CFA Society Portugal came about?
Ulugbek Suyumov, CFA: I have been living in Portugal for most of my life, but I was born in Uzbekistan at a time when my country was part of the Soviet Union. In 1985, the Soviet Union, then under [Mikhail] Gorbachev’s leadership, entered into an agreement with the United States to establish a student exchange program as a step to improve relationships among the two countries during the Cold War. I was one of the first participants in that program: I had a chance to spend one month, and eventually a full year, in Seattle with a group of 15 students.
It was an extraordinary experience. I also met Bill Gates at a time when Microsoft was still establishing itself in the market. I then attended the United World College in New Mexico during my last two years of high school. The UWC has more than 200 students from 70 countries and is part of a network of schools that aim at developing students into active agents of international collaboration and global peace. The first UWC college was founded by Prince Charles in Wales. Today there are 17 colleges around the world with similar humanitarian goals. While at UWC, I had a chance to meet my wife, who is Portuguese, and I eventually moved to Portugal.
In my career in finance, I have worked in a variety of roles in consulting, asset management, insurance, and banking. In all my activities I have always kept in mind the principles of the UWC education, and the importance of promoting international collaboration. Whether you live in the United States, Europe, or elsewhere in the world, we are part of a connected system. We can affect the life and decisions of other people who may also be living geographically far away from us.
With the CFA charter, I got access to a truly international network of individuals who also feel part of a global community of financial professionals. I started studying for the CFA charter in 2006 and completed the program in 2009. At that time, I had to take my exams in Spain because there was no CFA society in Portugal. I took the initiative of creating one by putting together a team of charterholders as founding members. It took us about 1 ½ years: We launched CFA Society Portugal in August 2013.
What do you consider the main recent developments in the financial industry in Portugal? Where are the greatest opportunities for CFA charterholders and other finance professionals?
As a president of CFA Society Portugal, I talk about this a lot with our members. We currently have more than 100 members: Most of them have obtained the CFA charter with the idea of moving to New York, Hong Kong, London, or Zurich. Most recently, our CFA charterholders are finding more opportunities to stay in Portugal.
One of the driving areas for growth has been the real estate sector, which is booming, particularly in Lisbon and Porto. Lisbon is now one of the top-ranked worldwide tourist destinations. A growing number of investors are coming to Lisbon to buy real estate, including private investors. CFA charterholders are finding opportunities in real estate management, and also in private banking as investors from Russia, South Africa, and other countries look for local representatives to take care of their financial interests.
Compared to other countries, Portugal still offers a relatively straightforward path to residency and citizenship for investors that purchase real estate above a certain value. Insurance companies also are offering work opportunities to CFA charterholders, particularly in their risk-management programs related to the Solvency II and Solvency III Directives of the European Union.
Brexit is bringing in new opportunities as well: We are seeing a growing number of small- and medium-sized firms, especially in the private equity sector, that are seeking to relocate to the EU, or at least set up a branch in an EU country. Portugal is a perfect spot for many of these firms: 1) Real estate is significantly less expensive in Portugal than Germany, France, or the UK; 2) human resources are less expensive and well qualified, generally with a good knowledge of English and a sound financial education; 3) we are on the same time zone as London. We are also the first airport that you encounter when you arrive from the United States, and we have very good connections to Africa, the rest of the Americas, and Europe. Portugal is the place to be in the EU.
The growth in the real estate sector has been a driver for the economy in Portugal in recent years. What are the prospects for this sector?
In my view, the real estate sector is likely to continue to grow. After the 2008 crisis, countries with a high level of public debt as a percentage of GDP were heavily downgraded by the main rating agencies. Portugal was downgraded multiple times in the span of two years, which is a very difficult situation for a country to overcome.
The crisis lasted more than seven years in Portugal. The banking industry had severe liquidity constraints, and the real estate market went down as financing capital was available only on a much more limited scale and at a higher cost. The best time to buy was probably between five and three years ago. Now prices have generally recovered, in part due to a pick up in the tourism sector, and driven by foreign investment from other countries in Europe (France, the UK, Sweden) and internationally (China, Russia, South Africa), as well as by a fiscal policy that has been favorable for foreign investors.
Some people believe that we are now reaching inflated levels of pricing, but my perception is that prices in Lisbon and Porto are likely to continue to grow or at least stabilize.
What is the impact on the flow of new real estate investment that you just described on the asset management industry?
The growth in real estate investment has been accompanied by a parallel growth in private banking. Foreign investors come to Portugal, in many cases to acquire residency, and bring at least portion of their savings with them. Also, the growth in the real estate and tourism sectors has brought new wealth to Portuguese nationals, who are adding to their invested capital. Portugal is becoming a trendy place for international celebrities: Madonna moved her residence to Portugal for instance.
I like to think of Portugal as our own European version of California: We are the “far west” of Europe — nice country, good weather, politically stable, and safe.
CFA Society Portugal will host a panel on asset management and manager selection process for asset owners on 26 June. What challenges and opportunities do you see for the asset management industry in Portugal?
In Portugal as in the United States, the asset management industry has suffered from a significant crisis in public trust in the wake of the financial crisis, from which we are still recovering.
The prevailing model for asset management in Portugal relies on private advisers who work directly with investors and focus on basic stocks and bonds with a short- to medium-term time horizon. Investors tend to favor direct ownership of assets, including real estate, versus fund investments. Asset allocation is generally performed with the assistance of a bank manager in a consulting role.
There is an inherent potential conflict of interest in this model, as the bank manager is tied to products that are offered by his firm. Investors, however, are generally aware of it, and are not bound to follow the advice of their bank manager. Also, banks tend to have a pretty broad range of competitive offerings, which can meet a variety of investor demands.
CFA charterholders have the opportunity to step into the private wealth business, and provide independent advice that is not tied to any bank. Also, I see a lot of potential for growth in the insurance market. The application of technology is changing the way insurance works very rapidly. For instance, the availability of electric cars will require new models to determine premia for insurance coverage.
We need professionals that can anticipate these changes and with the financial expertise to be able to address them.
*An earlier version of this article mistakenly listed the bailout amount as €78 million.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
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Antonella Puca, CFA, CIPM, CPA/ABV, CEIV, is a Senior Director in the Valuation Services group of Alvarez & Marsal in New York and the author of Early Stage Valuation (Wiley, 2020). Prior to A&M she was part of the alternative investment group at KPMG/Rothstein Kass, where she helped launch RK’s Bay Area practice, the global hedge fund practice of EY in San Francisco and New York, the financial services team at RSM US LLP, and BlueVal Group in New York. Puca served as a director in the ethics and professional standards group at CFA Institute and as a volunteer focused on certifications and curriculum programs. She has served as an executive committee member of the board of the CFA Society of New York and as a member of AIMA’s research committee. She is a member of the Business Valuation Committee of the AICPA. Puca is licensed as a CPA in California and New York. She is accredited in business valuation (AICPA), holds the valuation analyst and the entity and intangibles valuation certifications. Puca is a member of the Italian Professional Association of Journalists. She holds a degree in economics with honors from the University “Federico II” of Naples, Italy, and a master of law studies in taxation from NYU Law School. She has been an adjunct faculty member at New York University, a research fellow at the Hebrew University of Jerusalem, and a member of the 420 Italian National Sailing Team.