Colombian Pension Funds: international exposure impacted by reaching of equity ceiling

In April, Colombian Pension Fund Managers (AFPs) had to curb their international appetite, after a very positive first quarter of the year in which USD 1.15 billion was added to cross-border portfolios.

Holdings of cross-border instruments by AFPs, considering both mandatory and the voluntary funds, amounted to USD 15.1 billion at the end of April, a slight increase of o.4% compared with March data. The increase was limited despite rising markets, as pension fund managers were forced to cut back on their cross-border exposure in the month due to limits

Net new investments (NNI), according to Latin Asset Management estimates, were slightly negative by USD 30 million in the month, proof showing that the positions begin to be constrained by the limits set by the investment regime.

The restriction that is affecting cross-border investment is actually a cap on overall equity exposure, which does not distinguish between local and cross-border instruments. The biggest fund managed by the AFP, the Multifondo Moderado (moderate risk) with assets under management of USD 62.16 billion at the end of April 2014, is capped at a maximum of 45%, which has been nearly reached.

One solution would be for pension fund affiliates voluntarily request a transfer of their accounts into the Multifondo Mayor Riesgo (higher risk), for which the applicable limit is up to 70%. But this is one of the biggest challenges facing the system, given that since the launch of the multifund system in Colombia, over three years ago, only 1% of total assets under management have been transferred to this portfolio. Prior to the launch of the multifund system, 100% of the assets were in a portfolio that looks similar to the moderate fund, and few affiliates have bothered to transfer into other fund options.

Nevertheless, the portfolio managers did not remain quiet during the month, but they managed to rebalance their portfolios. For instance, AFP Porvenir, which had USD 6.6 billion invested in cross-border securities at the end of April, increased its exposure to developed markets, while it reduced those oriented to emerging markets. The iShares ETF family of BlackRock was almost the exclusive vehicle of the move, as three of its products captured a combined inflow of USD 174 millon:  iShares Core S&P 500 (USD 80 million), iShares MSCI Germany (USD 70 million) iShares MSCI Japan (USD 24 million). On the other hand, those funds suffering redemptions were iShares MSCI Emerging Markets (USD 85 million), iShares Colcap (USD 17 million) and iShares MSCI Brazil Capped (USD 14 million).

For more detail download:

Flow Report – Colombian Pension Funds (Obligatory + Voluntary) Investments in Cross-Border Funds and ETFs – April 2014

Holdings Report – Colombian Pension Fund Investment in Cross-Border Securities – April 2014

Colombia – AFP Report Statistics – April 2014