LatinFinance - May/June 2014 - 36

Brazil
Funds are taking
on more foreign risk

GUIDE TO
INSTITUTIONAL
WEALTH

PAGE 38

Mexico
Funds mandate
external managers
PAGE 40

Chile
Potential threats to a
regional role model
PAGE 42

Peru
Increasing
allocations abroad
PAGE 45

Shifting gear

Colombia
Changing regulations
PAGE 46

As the global recovery takes hold, institutional investors in Latin America are looking at new
ways of diversifying their assets. By Katie Llanos-Small
managing the long-term savings of
609 million people is a delicate task -
particularly so in a region where a rapidly
expanding middle class is saving everlarger pots of cash.
little wonder, then, that in latin
america, the topic of investing pension
funds assets is fraught with political
tension.
the debates vary. in chile they are
perhaps most stark: the new government
is set to change the system. its highestprofile initiative so far is its proposal for
a state-backed pension administrator to
compete with private ones - a radical
idea to some in the country, which led the
region in implementing a private pension
system.
in mexico, too, tension is notable.
Pension funds must invest at least 80% of
their assets in the local market, creating
concentration concerns for the regulator.
Despite pressure from the industry to

36 l atinfina nce.com - May/June 2014

allow more investment offshore, there
is little political will to see local savings
invested abroad.
"What we have is a fast-growing
pension system that doesn't find
enough alternatives to invest within the
mexican financial system and has a cap
of 20% abroad. it is a problem," says
carlos Ramírez, head of the country's
pensions regulator, consar. "the political
environment hasn't been the best to
promote a change to the 20% limit. it has a
lot of political opposition."
it is a familiar trade-off for other
countries, too. Governments across the
region are striving to attract investment
into infrastructure projects. local
institutional investors often provide a key
pillar of support for multi-billion dollar
initiatives, but concerns are mounting
over the prospect of losing such backing to
overseas investments.
Brazil, with its critical infrastructure

needs, is a prime example of this
challenge. the country's pension funds
are happy to invest at home - and with
domestic treasuries yielding 12%, their
case for doing so is strong; they are also
diversifying locally into growing numbers
of corporate bonds and structured
instruments, including infrastructure.
Yet the high returns at home in a variety
of securities have compounded regulatory
reticence to ease the way for international
diversification - something that has
only been allowed since 2009. even
now, Brazilian pension funds must club
together with others in a vehicle, to spread
international investing risk.
"We have to invest in a local fund
of which we can have up to 25% of the
assets, and that fund can invest overseas,"
says maurício marcellini, investments
director at funcef, which has 52 billion
reais ($24bn) of assets across its plans, and
which is studying its options to invest up to

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