LatinFinance - May/June 2015 - 40

PENSIONS
REGIONAL
INVESTING

Pension fund administrators are increasingly looking at the local markets
next door. But despite many good intentions, regulations still hinder them from
investing freely in other LatAm countries. By Shaheen Samavati

In the neighborhood

M

ost Latin
American pension funds are required to
invest a large portion of their funds domestically. Yet few put much money in neighboring countries.
That's not because pension funds are
not keen to put money to work in regional
markets. Indeed, their interest in doing so
was underscored in January, when Mexican
developer Corporación Inmobiliaria Vesta
sold 127 million new shares in an equity
follow-on. Latin American investors outside
Mexico bought 11% of the $227 millionequivalent transaction - a diversification
that Vesta was very happy with.
"For some of them, investing in Mexico
represents a complementing investment
because countries like Chile are very strong
on commodities but not very strong on
advanced manufacturing," Vesta's chief executive, Lorenzo Berho, told LatinFinance
at the time.
Nonetheless, regulations remain a
limitation on cross-border allocations.
And pension fund administrators in Chile,

40 L ATINFINA NCE.COM - May/June 2015

eration of Pension Fund Administrators,
or FIAP, the Santiago-based organization
that represents pension funds across Latin
America and beyond.
Loosening regulations would be just one
step toward promoting cross-border investing within the area. Other, harder to overcome, barriers include high transaction
fees and lack of coverage for exchange rate
risk between local currencies. For a Peruvian pension fund "it costs less to invest in
New York than in Bogotá," Canta says.

Colombia, Mexico, and Peru say the limited
cross-border progress is a major barrier
to financial integration within the Pacific
Alliance trade bloc, formed by the four
countries in 2011. Fund administrators want
regulators to raise caps, relax regulations,
and consider any investment within the
region to be domestic.
"We all agree that policy changes need
to be made," says Michel Canta, deputy
superintendent of retirement funds at the
Superintendency of Banking, Insurance,
and Private Pension Fund Administrators
(SBS) in Peru.
He considers that designating investments within the region as domestic is
a real possibility, at least for Peruvian
participants. However, making cross-pact
investing a reality will require coordination
between all the Pacific Alliance regulators.
Regulators from the four countries have
met twice this year, once at a Pacific Alliance get-together on financial integration
held in Chile in March, and again in April at
a Bogotá meeting of the International Fed-

A growing pot
The burgeoning workforce in these countries is driving growth so rapidly that local
capital market capacity can't keep up with
the size of local pension funds. Assets
under management are ballooning, both in
absolute terms and in relation to the local
economy.
In Mexico, pension fund assets equaled
about 14% of GDP at the end of 2014, according to FIAP data. In Peru and Colombia they
were around 20%, and in Chile, a whopping
73.2%.
"In order to allocate all their money,
funds have to use more international products," says Guillermo Mazzoni, research
manager at The Fund Pro Latin America.
Officials have already begun loosening
regulations that had limited cross-border
purchases. In Peru, although the legal limit
on foreign investment was set at 50% of total assets in 2011, the Central Bank's operative cap was much lower. Over the past two
years, that limit has increased from 36% to
42%, Canta of SBS says, noting that Colombia and Chile also now have relatively high
limits on international investment, at 50%


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LatinFinance - May/June 2015

Table of Contents for the Digital Edition of LatinFinance - May/June 2015

Contents
LatinFinance - May/June 2015 - Cover1
LatinFinance - May/June 2015 - Cover2
LatinFinance - May/June 2015 - Contents
LatinFinance - May/June 2015 - 2
LatinFinance - May/June 2015 - 3
LatinFinance - May/June 2015 - 4
LatinFinance - May/June 2015 - 5
LatinFinance - May/June 2015 - 6
LatinFinance - May/June 2015 - 7
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