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Higher foreign allocations needed say Peru’s AFPs

May 20, 2014

Peruvian pension fund CIOs say an increase in international investment limits is urgently needed

     
   Source: Imperial 94  
Two of Peru’s biggest private pension funds administrators say they must be allowed to invest more of their portfolios offshore, as growth of Peru’s capital markets struggles to keep pace with the growth of local pension funds.

"Peru's markets are just too illiquid," said Vicente Tuesta, chief investment officer at the AFP Profuturo, which manages around $10bn of assets, speaking in the May/June issue of LatinFinance.

"The limits for international allocation really must move up to Chilean levels eventually. Managers must be allowed to be more flexible and access liquidity in every form. If that happens, pension returns should start to go up."
Peru’s private pension managers, AFPs, will soon be allowed to invest 40% of their portfolios offshore, up from 20% just two years ago.

The Chilean regulator allows AFPs, which have almost $160 billion under management, to invest up to 80% of their funds overseas. Today, 36% or $55 billion of this is invested internationally, according to Investec.

Peruvian AFPs have total assets under management of around $38bn, according to Apoyo & Asociados Internacionales, a Lima-based ratings agency. Mutual funds amount to around $6bn and insurance companies have $9bn under management.

"The increase in the limits is incredibly important for the Peruvian pension system," said Jose Antonio Roca, chief investment officer at AFP Prima, which manages around $12bn.

"AFPs have been investing overseas really up to the limits, so I think we will continue to see more and more Peruvian money invested abroad. Organically, the industry's assets under management are growing by around 9% a year but the local capital markets are just too small for that money to be deployed domestically."

Peru’s stock market dropped 30% last year, making it one of the worst performers in the world. As a result, while Peruvians are saving more for retirement, some funds have begun to show negative returns — and gains have been flat over the past five years. LF

For more on Latin America’s pensions industry - including how the authorities in Peru are giving funds more freedoms over where and how they invest - see the Guide to Institutional Wealth , in the May/June edition of LatinFinance.


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