Latin Finance - July/August 2010 - 23

peru pension funds

Asset Growth Surge
by Lucien Chauvin eru’s pension funds (AFPs) managed $25.6 billion at the end of April, up from $23.9 billion at the end of 2009, according to the banking and insurance regulator (SBS). This represents a full recuperation from the lows of the global financial crisis, which helped drag private pension system assets down to $15.6 billion at end-2008. “We recuperated and are now in a strong period of growth,” says Pedro Flecha, president of the Association of Private Pension Funds (APPF). “The international crisis did not affect the financial sector here, but the crisis hurt our economy,” he adds. At $25.6 billion, assets managed by Peru’s four AFPs are equivalent to 18% of GDP and 75% of internal savings. Flecha says research carried out by the APPF determined that investment by AFPs contributed nearly one point to Peru’s accumulated GDP growth in the past decade. Integra and Prima are the largest, with approximately $8 billion each under management, followed by Horizonte with $6 billion and Profuturo with $4 billion. There have been several players enter and leave the market, but the system has remained relatively stable since first being established in 1993. The four existing AFPs are now all appendages of larger financial holdings. Horizonte is held by Spain’s BBVA, Integra by Holland’s ING, Prima by Peru Banco de Crédito and Profuturo by Canada’s Scotiabank. Under current legislation, 70% of funds must be deployed locally. Foreign investment by AFPs was upped to 30% from 24% in 2009, with the central bank charged with gradually increasing the amount based on market conditions. Managers expect the bank to finish the increase by the end of this year, although this does not mean AFPs will immediately move to that level. AFPs had

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Peru’s private pension funds have shaken off losses from the global crisis and are now experiencing sustained growth. Assets are projected to double in four years.
hands into the bowl, but that is not going to happen in Peru,” he adds. Of the local investment, government paper accounts for around 20%, mining company debt and equity is 18% and financial sector securities account for 16%. Flecha says the two big growth sectors he sees in the coming years are infrastructure and real estate and construction, primarily in equity. There are no restrictions on debt or equity holdings.

Trust in Infrastructure

Informality costs, says Paz Soldán approximately 78% invested locally and 22% abroad at the end of last year. The AFPs offer three options, ranging from conservative to aggressive, that affiliates can choose for contributions. The most conservative has generated a return on investment of approximately 8%, while return on the second has averaged 14% and the third 24%, according to Mariano Paz Soldán, head of the Profuturo AFP. The funds are overseen by the SBS, which requires daily filing of the amounts managed and invested. Paz Soldán says reports are filed with numbers to the seventh digit. “SBS has shown that a strong and transparent regulator is important. The only way a fund could go bankrupt would be the state sticking its

The four AFPs are participating in a Peru Infrastructure Fund that will include the Peruvian government, through COFIDE, a state-run second-tier bank, CAF and the IDB. The $500 million investment vehicle will be managed by Canada’s Brookfield and Peru’s AC Capitales. AFPs will put up half the capital. The pension funds, however, decided last year that it was taking too long for the fund to get off the ground, so in July they began developing their own project and launched the $300 million Infrastructure Trust Fund in February. The fund is managed by the Banco de Crédito and the first investment, $35 million in a waterworks project for Lima, was announced in April. “We are looking for new projects, but it is a complicated process. Strong possibilities for investment in the short term are expansion of the Pan-American Highway in the north of the country and the port in Paita, Piura,” says Flecha. The highway expansion, which consists of building new lanes and managing the

July/August 2010

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Latin Finance - July/August 2010

Table of Contents for the Digital Edition of Latin Finance - July/August 2010
