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Pension funds grapple with investment limits as portfolios swell 0

May 13, 2013

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 said.

"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.


 Carlos Ramí­rez, Consar


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 manager.

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 bubble."

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.

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