Challenges and Opportunities for the Pension Funds

Challenges and Opportunities for the Pension
Funds System in Mexico
MEXICO PE DAY
AMEXCAP
June, 2014
Contents
I.
Introduction
II.
Overview of the Mexican Pension System (SAR)
III. Investment regime
IV. Challenges for long-term investments in Mexico
V.
Concluding remarks
2
Mexico is in the
process of overcoming two
of its main obstacles for growth
1
1.
Healthier level of financial savings
Financial savings
(% of GDP)
70%
68.2%
60%
50%
40%
32.6%
30%
20%
14.2%
Domestic Savings / GDP
Retirement savings / GDP
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0%
March…
10%
3
México is building new and multiple
investment opportunities
2
2.
Modernization of its legal framework
1.
Reforms and investments
plans launched by President
Peña Nieto
Energy Reform
2.
Telecommunications and
Competition Reform
3.
Infrastructure National Plan
Open new opportunities to
businesses in different sectors
AFOREs can and must play a main role as
investors in infrastructure projects and private
equity
4
Contents
I.
Introduction
II.
Overview of the Mexican Pension System (SAR)
III. Investment regime
IV. Challenges for long-term investments in Mexico
V.
Concluding remarks
5
Mexico’s Pension System development
• In 1997, the pension system for private sector employees was amended
from a pay-as-you-go scheme to a defined contribution structure based on
individual accounts managed by private agents known as AFOREs.
• In 2007 new public sector employees were incorporated to the individual
accounts pension system.
• AFORES, through their funds, invest the employees´ mandatory savings
complying with the investment regime defined by CONSAR.
6
From 2008 to date, pension funds’ assets
under management (AUM) have increased
more than double
163,725
million dollars
AFORE’s AUM
2,500,000
2,143,166
126.3% growth
2,050,847
2,000,000
1,903,227
1,566,241
1,500,000
1,384,897
1,151,186
947,029
1,000,000
831,704
724,344
587,519
478,549
500,000
402,053
322,535
247,824
-
6,177
1997
56,693
1998
108,466
1999
163,619
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 abr-14
Assets invested by SIEFOREs represent 14.2% of Mexico´s GDP
Figures in million of MXN at the end of april 2014.
Exchange rate at April 30, 2014: 13.09 pesos per dólar.
7
51.1 million workers save
for their retirment in AFOREs
Accounts
(millions)
60
50
40
30
26.5
20
10
11.2
13.8
15.6
29.4
31.4
33.3
35.3
37.4 38.6
39.3 39.9
43.5
45.4
48.5
50.9
49.1
51.1
17.8
0
8
11 AFOREs participate in Mexico’s
pension system
Accounts
(thousands and market participation)
XXI Banorte
11,419 25.2%
Banamex
7,918 17.5%
SURA
6,229 13.7%
Coppel
5,375 11.9%
Principal
3,771
8.3%
Profuturo GNP
3,279 7.2%
Invercap
3,133 6.9%
PensionISSSTE
56.4%
68.2%
1,219 2.7%
Inbursa
1,098 2.4%
Metlife
Assets under management
(million pesos and market participation)
XXI Banorte
556.8 26.0%
Banamex
366.3 17.1%
SURA
306.5 14.3%
Profuturo GNP
261.9 12.2%
Principal
Invercap
134.3 6.3%
PensionISSSTE
100.2 4.7%
Inbursa
99.6 4.6%
Coppel
88.3 4.1%
Metlife
64.5 3.0%
888 2.0%
Azteca
0
5,000
10,000
15,000
Miles de Cuentas
69.6%
140.7 6.6%
1,016 2.2%
Azteca
57.4%
24.1 1.1%
0
mmdp
200
400
600
9
Contents
I.
Introduction
II.
Overview of the Mexican Pension System (SAR)
III. Investment regime
IV. Challenges for long-term investments in Mexico
V.
Concluding remarks
10
The investment regime has been
gradually liberalized
Deuda Privada:
402,191 mdp
RV Nacional:
197,962 mdp
11
Compared to 1998, siefore’s portfolio
is highly diversified
Evolution of the portfolio composition of the SIEFOREs
February 2014
September 2005
January 1998
Government
Securities
97.7%
Private
Corporate
Bonds
1.7%
Repo
0.5%
Banking
Securities
0.1%
12
An increasing amount of
pension savings Is Financing productive
projects, generating a virtuous circle
Workers’ savings
Investment in
Competitive
productive
returns to savings
projects
MEXICO’S
PENSION
SYSTEM
Macro Stability
Employment
Economic growth
13
Investment in domestic
productive activities is growing rapidly,
benefiting firms of different sizes
800,000
Total as of April 2014 = 51,672 million USD
Structured Securities:
6,899 million USD
700,000
600,000
Total as of April 2012 = 37,530 million USD
Structured Securities:
4,007 million USD
500,000
400,000
Private Debt:
31,296 million USD
300,000
Private Debt:
22,971 million USD
Local
Equity
Renta
Variable
Nacional
Local Private
Privados
Nacional
31-dic-2013
30-sep-2013
30-jun-2013
31-mar-2013
31-dic-2012
Local Equity:
13,477 million USD
31-mar-2012
31-dic-2011
30-sep-2011
30-jun-2011
31-mar-2011
31-dic-2010
30-sep-2010
30-jun-2010
31-dic-2009
30-sep-2009
30-jun-2009
31-mar-2009
31-dic-2008
30-sep-2008
30-jun-2008
31-mar-2008
31-dic-2007
30-sep-2007
30-jun-2007
31-mar-2007
31-dic-2006
30-sep-2006
30-jun-2006
30-mar-2006
30-dic-2005
-
31-mar-2010
Local Equity:
10,553 million USD
30-sep-2012
100,000
30-jun-2012
200,000
Structured Securities
Estructurados
TOTAL (April, 2014) = 51,672 million USD
*Exchange rate at April 30, 2014: 13.09 pesos per dólar.
14
The investment regime allows AFOREs to
invest in infrastructure, housing, and
private equity though diverse vehicles
1
CKDs
Aimed for the development of projects and
companies
2
FIBRAs
Specialized in the acquisition, construction and
financing of infrastructure and real estate
3
REITs
Similar to FIBRAs, but listed in eligible countries
Debt linked
4 to real
assests
Debt whose source of payment are real assets or
projects
15
Pension funds’ investment in these
vehicles was approved in 2007. the limits
have been gradually relaxed
Evolution of the investment limits in Structured Securities
2007
2008-2009
2010-2011
2012
2013-2014
The bucket of Structured Securities has two sub-limits related to the underlying
projects:
Global Limit
Infrastructure or Housing
Others
Current limits of Structured Securities
SB1
SB2
SB3
SB4
5%
15%
20%
20%
n.a
10%
13%
13%
n.a
5%
7%
7%
16
AFOREs have invested
USD $5,000 millions in CKDs
CKDs can finance a wide range of companies, projects and sectors
Type of CKD’s
Forest Projects
Infrastructure
Development
and
commercialization of
plants
and wood in
Campeche
Hospitals
Universities
Highways
Airports
Logistic
platforms
Financial
Assets
Subordinated/
Mezzanine/
Convertible
Loans
Loan
Portfolios
Real Estate
Malls
Retail/office
properties
Housing
Private
Equity
E-commerce
Health
industry
Touristic
services
Food and
restaurants
AFOREs have the regulatory capacity to invest USD
$20,000 millions more in CKDs
Energy
Hydroelectric
power stations
Oil platforms
17
Contents
I.
Introduction
II.
Overview of the Mexican Pension System (SAR)
III. Investment regime
IV. Challenges for long-term investments in Mexico
V.
Concluding remarks
18
Retirement savings growth will allow afores
to keep playing a main role as investors
Actual and Estimated Net Assets
(Conservative scenario)
4,000
USD 225 billions
3,500
2,940.0
Billions of MXN
3,000
2,500
2,000
2,213.7
USD 169 billions
1,500
1,000
500
0
19
AFOREs must be ready to
take advantage of the opportunities
brought by Mexico’s current moment
Growing size of
New investment
AFORE’s Assets
opportunities in
Under Management
strategic sectors
Historical moment for
AFOREs
CONSAR is currently modifying pension funds’ legal and regulatory
framework to allow AFOREs to be ready to invest in these opportunities
20
there is still space
available for diversification
21
Regulatory reforms
Some recent
regulatory
reforms:
i.
Inclusion of new assets and vehicles in
the investment regime
i.
Portfolio benchmarks
ii.
Substitution of VaR for a methodology
that incorporates leverage through
derivatives
iii. Lengthening of the horizon of the Net
Return Index to align it with
SIEFORE’s investment horizon
22
Legal reforms
i.
Pending
reforms to
Mexico’s
Pension
Fund System
Law
Performance fee
ii. Further expansion of the investment
regime
iii. Corporate governance strengthening
iv. More faculties to execute a risk based
supervision
v.
Private offerings
23
Private offerings have clear advantages for
AFOREs, however their risks should be
mitigated through regulation
Advantages
Risks
Active participation in new projects
derived from the Energy Reform and
the National Plan of Infrastructure
(APPs)
1 Conflicts of interests
Specialized co-investors in large-scale
2 projects
2 Fund selection skills
Expand the universe of investment
3 opportunities to SIEFOREs
3 Transparency of fees
4 Cost reduction to both, issuer and
4 Valuation
5 Security of savings is preserved
5 Corporate governance
1
investor
6 International practices from other
pension systems would be adopted
24
Contents
I.
Introduction
II.
Overview of the Mexican Pension System (SAR)
III. Investment regime
IV. Challenges for long-term investments in Mexico
V.
Concluding remarks
25
Pending Issues
i.
Pending
issues
Increase in contributions
ii. Relaxation of SIEFORE’s investment
limit in international assets
iii. Relaxation of SIEFOREs investment
limit in equity
26
Concluding remarks
• Mexico’s growth of finacial savings and intense agenda of structural reforms
are opening new opportunities to businesses.
• AFORE’s growing assets and long term investment horizon provide them
of a unique position to continue playing a relevant role as strategic investors.
• CONSAR is modifying the legal and regulatory framework to allow
AFOREs to be ready to invest in these opportunities:
 Inclusion of new vehicles in the Investment Regime.
 Strengthening of AFORE’s corporate government.
 Aligning incentives for long term investment.
27
Challenges and Opportunities for the Pension
Funds System in Mexico
MEXICO PE DAY
AMEXCAP
June, 2014

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