A rise in Brazil's equity markets could force pension funds
nearing their portfolio limits to dump stocks, the chief
investment officer of Latin America's largest pension fund has
"If the stock market in Brazil skyrockets, we're probably going
to have a problem, we're going to face limits very soon," said
Renê Sanda CIO of Previ, which holds retirement savings
worth over $80 billion equivalent.
Previ's Plano 1 has almost 60% allocated to equities, bringing
it close to the 70% equity allocation limit set by Brazil's
pension regulator, Sanda said.
"Maybe we will have to ask for a waiver or try to sell some
investments," he said.
Sanda's comments underscore difficulties faced by pension funds
across Latin America as they attempt to find strong but stable
returns for their rapidly growing assets against the backdrop
of a shifting regulatory landscape.
Mexico's pension fund assets surpassed 2 trillion
pesos ($164 billion) in the first
quarter – having doubled in four years.
Similarly, pension funds in Chile, Colombia and Peru stand at
around $271 billion, up from around $116 billion in 2008.
Previ is preparing a vehicle for its first offshore investment,
which will be put in the hands of a third party asset
In Mexico, meanwhile, pension funds are limited by a 20% cap on
international investments – something the
regulator says must change to lessen country risk.
"Savings are growing much faster than the Mexican financial
system," said Carlos Ramírez, head of the
country's pension regulator, Consar. "If you don't
open the 20% limit, what's going to happen? The pension funds
will continue looking for best alternatives in Mexico. But if
they will continue only investing domestically, that will
pressure prices up and returns down in the Mexican market. If
you pressure prices up, there's a risk eventually of creating a
Afore XXI-Banorte says it would like to see the offshore
investment limited to 40% of the total portfolio.
"We think the optimal thing is for the limit of investment in
foreign assets to open up and how Afore XXI plans to prepare
for that is through mandates," said CIO Ignacio Saldaña.
Five Mexican pension fund administrators, known as Afores, are
in the final stages of negotiating third party asset management
agreements with regulators, Ramírez told
LatinFinance. The regulator is keen for external fund
managers to look after some assets, and expects other Afores to
follow once the first mandates are signed.
"What the Afores are doing is relying on very experienced asset
managers abroad that know what's going on the world," he said.
"It's a way of diversifying."
Read an in-depth discussion of the asset
allocation task facing Latin American pension funds, including
comment from CIOs and regulators, in full here.