Mexican Afore private pension managers are finally in the spotlight thanks to momentous 2011 rule changes that appear to open the door to investment in mutual funds and separate accounts run by global asset managers. The new game-changing rules adopted by Mexico’s pension regulator,the Consar, have global asset managers once again eyeing this important but neglected marketplace.
Though Mexican law for years has allowed the Afores to invest up to 20% of their assets internationally, the regulator had kept in place an extremely conservative policy that limited foreign investment to ETFs and indices in conjunction with principal-protected notes. But in 2011, with new leadership at the Consar, investment in active managers is imminent, and Afores now find themselves with a world of possibilities to choose from.
The long-overdue changes make sense, given the Afores’ need for expert advice in a complicated global economy. The changes do come in the wake of important systemic changes in previous years, most importantly the widening of the system into a five-fund mulitfund system, which allows younger workers to take more aggressive positions in equity vehicles. The segregation of risk by age cohort was a necessary precursor to additional risk-taking, as the Consar – and the pension industry itself – claim to be particularly cautious about exposing middle-aged workers to significant volatility that could jeopardize future pension payouts.
Mexico’s Afores have amassed US$125 billion in assets, second in Latin America only to Chile’s AFP pension managers. Latin Asset Management projects that the Afores will surpass Chile’s AFPs in assets over the course of the decade, in part because of Mexico’s larger workforce and, hence, more robust inflows into its compulsory pension system. Increased exposure to equities should also help it reap the benefits of market upswings, as AFPs in Chile – which can invest up to 80% offshore - have been doing successfully for years.
With a projected US$250 billion under management by 2015, at minimum the Afore industry should be allocating close to US$50 billion (20% of their assets) offshore; but in the not-so-unlikely scenario of an increase in international-investment limits in the medium term, the offshore figure could easily be closer to US$75 billion-US$100 billion by 2016-2017.
Fund Pro Performance and Latin Asset Management have organized the Institutional Investment Seminar not only to usher in the new range of opportunities available to the Afores, but also to give domestic and global investment managers the chance to showcase their talent and expertise in the presence of local mutual fund managers, insurers, and private bankers as well.
During the seminar, Fund Pro Performance will be awarding – for the first time in Mexico – trophies and diplomas to Mexican Afores based on their performance in all multifund sectors, and honor one special firm with the prize of Afore of the Year. The awarding of prizes by Fund Pro Performance is a highly anticipated event in the Mexican and Chilean mutual fund markets, and in 2011 the firm has extended its analysis to include the region’s pension funds as well. |
