The president of Mexico’s pension regulator (CONSERVE) says that the Afore investment regime needs to be more flexible, although the current regime allows Afores a lot of leeway to further diversify their portfolios.
In an exclusive interview with Fund Pro Latin America, Ivan Pliego said that of the US$250 billion that Afores manages, approximately US$40 billion is invested in assets with international exposure. By his numbers, that’s broken down into roughly 154 ETFs, 23 mutual funds and six investment mandates. It also has approximately US$1 billion invested in international fixed income debt instruments through 13 corporate bonds and seven foreign government bonds.
“This is about 16% of the 20% that Afores are allowed to invest abroad, so there is a lot of scope for Afores to benefit even more from the investment system, even without having to change the law,” he said.
The CEO who recently became president of International Association of Pension Fund Supervisors (AIOS) – which consists of the supervisors of the individually funded pension systems of Chile, Colombia, Costa Rica, El Salvador, Mexico, Panama, Peru, the Dominican Republic and Uruguay, mentioned that back in September, when he took office in CONSAR and in for the first three months he held weekly meetings with Afores. “We now have monthly meetings, which is a very useful exercise and I think it’s important to reach agreements,” he said.
One of these agreements involved the return of Forks the responsibility for approving cross-border mutual funds from which Afores can choose. “The independent expert the figure was a pending issue,” he said, adding that CONSAR had the idea of centralizing this analysis, but after working with the Amafore team and seeing that they could comply in a robust manner, they decided to “allow them to continue to offer this service to the lobby of the association and to PENSIONERS by means of a supplementary agreement.”
Pliego believes that this agreement will help them analyze the vehicles in a more efficient way so that each Afore can develop its investment strategy as it sees fit.
Amafore began its review process on March 30, 2022, and since then there have been three monthly updates to the list, which now includes 362 ETFs and 129 mutual funds. According to Pliego, Afores have so far invested MXN 55 billion (USD 2.9 billion) in cross-border mutual funds, just a tenth of the MXN 644 billion (USD 32.7 billion) they allocate to ETFs.
The executive also sees opportunity in the alternative space. “Given the chip shortages generated by the pandemic, more so CERPI can look into that area,” he said. Pliego also supports finding a structured facility so that Afores can invest in small and medium-sized projects that promote local development: agriculture, road infrastructure, drainage or water and sanitation services.
Before the Citibanamex sale
Considering the size of Afore Citibanamex and the fact that the bank wants to sell all of its consumer, small and medium banking operations as a whole, Pliego believes the process will take “over a year and a half, maybe two.”
“It would be easier if it was sold in pieces,” he said, adding that even then it was not a simple deal. Just looking at Afore and bearing in mind that there are rules in place that no single Afore should have more than 20% of either system AUM or client accounts,”Banorth it won’t be able to as it will then represent 33-34% of AUM. Aztec couldn’t do it given the number of accounts. Inbursa (which is owned by a billionaire Carlos Slim) may also technically have permission to do so.
“In any case, this will be a very carefully and strictly monitored financial process,” Pliego said.
“What we need to ensure is that the quality of services to account beneficiaries is maintained and improved and that investment strategies are also improved because this will determine the returns and benefits for all account beneficiaries,” concluded the new president of CONSAR.