Mexico Loosens Rules for Pension Funds

(February 19, 2010) – Mexico’s pension fund regulator approved regulatory changes that are expected to give Mexico’s pension funds, which manage roughly $85 billion, less restricted market access.

“The new regulation increases the flexibility in risk limit for pension funds during temporary spikes in volatility,” Nick Chamie, global head of emerging-markets research at RBC Capital Markets in Toronto, said in an interview with Bloomberg. “Pension funds are likely to take on longer duration along the curve because the risk limit won’t force them to liquidate.”

Fund managers say they expect to increase their holdings of public equity funds, subordinated debt and other riskier securities.

According to pension fund regulator Consar, pension funds can now buy the individual stocks of Mexican companies, providing they are listed on the Mexican Stock Exchange and belong to an authorized equity index. The adjusted rules would give funds greater flexibility to hedge against volatility by managing their stock and debt holdings.

Gains in finance, mining, home-building and retail stocks helped lift Mexico’s benchmark IPC index as much as 1.02% to 32,216, partly due to the news of the regulator’s move.

Consar said the rules would likely go into effect early next week, according to Reuters. The new measures still need to be approved by the Federal Commission for Regulatory Improvement, known as Cofemer.