Latin Finance - July/August 2010 - 28

mexican buyside

12-15 debt issues could occur between June and the end of 2010, attracting the funds, says Arnulfo Rodriguez, fixedincome analyst at Banamex-Accival. He adds that Afore interest in bonds is for triple A companies, with a few double A issuances making the cut.

Open to Brazil

Fund managers say they are happy with the pace at which Consar is easing investment restrictions. But despite recent strides, some CIOs would like to see further reforms and expect them in the next few years – once Afores have integrated the most recent changes into portfolios. Rules on investing in EM that restrict purchases to top international Growth slows, says XXI’s Rodríguez grade instruments or IOSCO-technical committee members have left Brazil and operate swaps, forwards or futures the the rest of LatAm mostly beyond the reach Easy Money system needs to develop that, and then of Afore wallets, says XXI’s Rodríguez. In the meantime, asset growth has we can think about how to expand the Thanks to the restrictions, XXI is not averaged 20% per year for the past eight investment regime,” Solórzano says. looking to Brazil at this time, he says. years, Oscar Franco, AmAfore’s director Nevertheless, Profuturo is gearing up general, tells LatinFinance. By 2030 the Passing the Buck to invest in raw material markets in Latin funds will represent 20% of GDP, he Most other fund managers, however, America, among other regions, Reyes added. reject criticism that their investments are says. He says Afores can buy Brazilian Predictions differ slightly on future too conservative or that Afores slavishly equity listed on Spain’s Latibex index or Afore growth, with most CIOs saying it ape each others’ purchasing patterns. Mexico’s BMBra 15, adding that Consar will lose pace a bit in the next few years Some blame slow expansion into equity is analyzing whether to approve Bovespa to around 15% annually. XXI’s Rodríguez on lack of liquidity and variety in an and Brazil’s Morgan Stanley says growth will drop after a index as soon as this year. recovery boosted funds by as Afores Investment in International Equity (%) Restrictions on investing much as 30% this past year Exposure rising post-crisis in only top grade EM and and a constantly diminishing April 2008 April 2009 April 2010 IOSCO leaders could be pool of new workers is relaxed in the next two entering Afores compared to Americas 2.50 1.90 3.50 to three years, says ING’s the first massive wave of fund Asia 0.30 0.10 0.20 Solórzano. Prohibitions on affiliation. ING’s Solórzano Europe 4.40 1.50 1.30 buying commodities could says the annual rate could also change within the next fall to as low as 14% as Total 7.20 3.60 5.00 few years, XXI’s Rodríguez interest rates keep dropping Source: Consar says. on improved country risk. Other regulatory changes However, Afores are underdeveloped local market. could include permitting investment poised this year to benefit from wellBancomer’s Díaz says that if funds in lower-rated local bond issuance and performing government bonds, corporate had raised risk exposure pre-crisis, allowing derivative credits within five growth and underpriced stocks from returns would not be as plentiful as years, Solórzano says. But changes healthy companies that suffered from today. Banamex analyst Rodríguez says should also come from within the Afores, Europe’s troubles, Banamex’s Rodríguez politically charged debates over Afore which are not optimizing the investment says. This assumes that the Euro-zone freedoms currently granted by Consar, he returns can also hamper large strides into crisis does not strike too close to home. higher yield investments. adds. “It’s a great year for Afores,” Rodríguez “The main portion of our government “If we haven’t reached investment says, predicting 30% in growth from securities are very long term, because they contributions and yields this year. “They limits in private equity and [CCDs], we are vehicles that can guarantee a yield for don’t have to do much to have great need to do something about that. If the the longest duration,” and until a worker system is not yet entirely approved to returns.” LF

retires, Profuturo’s Reyes says. For that reason, no matter how much Afores move away from sovereign debt, those assets will never drop below 30%, he says. While defending their actions, fund managers agree on the need to diversify portfolios. Pension funds will have to boost yields in the long term in order to replace an eventual deceleration in worker contribution in 10-15 years, Profuturo’s Reyes says. The majority of Afore growth has already shifted toward yield and away from worker contribution, even as contributions keep growing, Reyes says. ING’s Solórzano predicts Afores will become more aggressive investors as the Mexican Social Security Institute slowly pulls out contributions to the pension program in the next decade.

28 LatinFinance

July/August 2010

Latin Finance - July/August 2010

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