Mexican Pension Regulator Ups Limits on Equity Investment

While Mexico's Afore retirement funds are still slanted toward fixed-income and government bonds, new rule changes could release $6 billion into equities.

(July 29, 2011) — Mexican pension regulator Consar has implemented a rule change that could drive as much as $6 billion into the local stock market, the Wall Street Journal has reported.

Consar has upped the amount that worker retirement fund managers — known as Afores — may invest in equities by 5%. “The idea is to do everything possible to increase returns,” Vanessa Rubio, spokeswoman for Consar, told the WSJ. “We did a calculation that shows that every 1 percentage-point increase in return on investment translates into a 28% increase in a worker’s pension.”

Afores managed over 1.40 trillion pesos in assets, or roughly $125 billion, as of the end of June.

Another recent change by Mexico’s pension regular is its decision to allow Afores to employ external managers to oversee a portion of their assets in order to gain added value in the international market. “It is a positive development for the system, because it will allow workers’ funds to be invested in a better way and be in a better position to take advantage of the current limitations to investments,” Isaac Volin, country head for Mexico at BlackRock, told the Financial Times in June following the decision.

Consar issued a directive in March 2011 allowing Afores, which have about 10% of Mexico’s gross domestic product, to employ external managers to oversee a percentage of their assets.

When outsourcing pension fund assets, fund managers and their teams must have a minimum of 10 years of experience and a minimum five years managing the specific asset classes of the mandates, according to the FT. Additionally, managers must have at least $50 billion in assets under management, the support of a custodian bank and independent valuators, and be supervised by the authorities of the countries in which Afores are allowed to invest.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742