Latin American Capital Markets

INSTITUTIONAL INVESTORS AND CAPITAL MARKET DEVELOPMENT 149terest are either disclosed or prohibited and that shareholder costs are clearly and accuratelydisclosed. For example, in the mutual fund sector; the role of the fundsponsor should be separated from that of the portfolio manager and members, andcertain members of the board of directors of the fund should act independently, freeof conflicts with the underlying company.To encourage institutions to act on behalf of their beneficiaries when participating in proxy voting, policymakers in Latin America and the Caribbean should developand implement corporate governance systems in line with the principles outlinedby the OECD, which include the protection of shareholders' rights, the equitabletreatment of shareholders, the rights of stakeholders, the responsibilities of the board,and disclosure and transparency. Recent developments suggest that corporate governancehas become a higher priority than it was in the past for policymakers in the region.In 2000, for example, Mexico published the Mexican Code of Best CorporatePractices, which appears to be fully consistent with these principles (Consejo CoordinadorEmpresarial 2000).Investor Education ProgramsLatin America and the Caribbean lacks a pervasive investment culture oriented towarddomestic capital markets, and it has no tradition of looking to these markets as a viablesource of financing. With fundamental investor protections in place, investors must becomeinformed of the benefits and risks associated with committing their funds, particularlylong-term funds, in the domestic capital marketTo meet their investment goals,investors in the region must become better able to evaluate the information they receiveso that they may make informed decisions. Moreover knowledgeable investorsare better able to detect securities fraud and may further a culture of compliancewithin the industry by investing only with firms that provide ethical services. Efforts towardinvestor education must come from both regulatory and industry initiatives, suchas sector trade associations, that recognize that markets exist by the grace of investors.ConclusionIn examining the development of the domestic institutional investor sector in theUnited States and other countries, it is clear that certain common elements contributedto sector growth. Favorable economic conditions, increasing need for retirementsupport, tax incentives, and investor confidence through regulation created de-Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub