Consar chief: Afores have plenty of space to invest internationally without modifying law

The president of Mexico’s pension regulator (CONSAR) says that Afore investment regime should be more flexible, though the current regime allows the Afores plenty of leeway to further diversify their portfolios.

In an exclusive interview with Fund Pro Latin America, Ivan Pliego said that of USD 250 billion that the Afores manage, roughly USD 40 billion is invested in assets with international exposure. According to his numbers, this is divided into roughly 154 ETFs, 23 mutual funds, and six investment mandates. There is also roughly USD 1 billion invested in international fixed income, through 13 corporate bonds and seven foreign-government bonds.

“This is about 16% of the 20% the Afores are allowed to invest abroad, so there are many possibilities for the Afores to take even greater advantage of the investment system, even without having to modify the law,” he said.

The executive, who recently became the president of the International Association of Pension Fund Supervisory Bodies (AIOS) – which is made up of the supervisory bodies 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 at CONSAR, and for the first three months, he was having weekly meetings with the Afores. “Now we have monthly meetings, which is a very useful exercise and I think it is important to reach agreements,” he said.

One of these agreements included handing back to the Amafore the responsibility to approve cross-border mutual funds for the Afores to choose from. “The independent-expert figure was a pending issue,” he said, adding that the CONSAR had the idea of centralizing this analysis, but after working with the Amafore’s team and noticing that they could comply in a solid way, they decided to “let them continue offering this service to the Afores of the association and to PENSIONISSSTE by means of an additional contract.”

Pliego trusts this agreement will help them analyze the vehicles in a more efficient way so that each Afore can develop its investment strategy as each sees fit.

The Amafore started its review process back on March 30, 2022, and since then, there have been three monthly updates to the list that now includes 362 ETFs and 129 mutual funds. According to Pliego, the Afores have invested so far MXN 55 billion (USD 2.9 billion) in cross-border mutual funds, just one-tenth of the MXN 644 billion (USD 32.7 billion) they are allocating to ETFs.

The executive also sees opportunity in the alternative space. “Given the chip shortage generated with the pandemic, more CERPIs could look into that area,” he said. Pliego is also in favor of finding a structured vehicle so that the Afores can invest in small and medium projects that promote local development: agriculture, road infrastructure, drainage or water and sewage services.

Afore Citibanamex sale

Considering the size of Afore Citibanamex and the fact that the bank wants to sell all of its consumer, small business and middle-market banking operations as a whole, Pliego believes the process will last “over a year and a half, maybe two.”

“It would be easier if it is sold in pieces,” he said, adding that even then, it is not a simple transaction. Just looking at the Afore and considering that there are rules in place stating that no Afore should have more than 20% of either system AUM or client accounts, “Banorte would not be able to, since it would then represent 33-34% of AUM. Azteca could not do it considering number of accounts. Inbursa (which is owned by billionaire Carlos Slim) could also technically be allowed to do so.

“In any case, it is going to be a highly scrutinized and rigorously monitored financial process,” Pliego said.

“What we have to guarantee is that the quality of services to account beneficiaries is maintained and improved, and that investment strategies are also improved, because that is what will determine the returns and benefits for all account beneficiaries,” CONSAR’s new president concluded.