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.

For more stories like this, sign up for the CIO Alert daily newsletter.

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