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FIAP > Boletín – Recientes > Pensions Note No. 32 – Pension Fund Investment in alternative assets: Chile and Mexico – December 2018

Pensions Note No. 32 – Pension Fund Investment in alternative assets: Chile and Mexico – December 2018

14 March, 2019
  • The sufficiency of funds for financing pensions on reaching retirement age is one of the most pressing issues for pension systems worldwide. Pension fund managers are therefore continuously searching for investment vehicles that offer attractive returns. Alternative assets are one of those vehicles. Some examples of alternative assets are real estate, private equity, private debt and infrastructure. Investments in these types of instruments provide pension fund investment portfolios with long-term assets in accordance with the investment horizon of pension savings, in addition to contributing to diversification and providing sources of income that can exceed those of traditional assets.
  • Mexican regulations have allowed fund managers to invest in alternative assets since 2007. Currently, for example, investments in alternative assets can be made through the so-called Development Capital Certificates (CKD) and Investment Project Certificates (CERPI). The fund managers have participated in infrastructure, energy and real estate development projects, among others, through these instruments. The AFOREs have invested US$ 23,000 million in CKD and CERPI to date, equivalent to 8% of the total portfolio.
  • The regulations authorized direct investment in alternative assets in October 2016, but the law that effectively allows the AFPs to invest in these assets was only promulgated in October 2017. The majority of the local AFPs formed teams to start investing in these types of instruments in the first half of 2018. By June 2018, 2.7% of the funds (approximately USD 5,512 million) had been invested in alternative assets. If they abide by the limits imposed by the Central Bank, the fund managers can invest a maximum of US$ 13,305 million in these assets, i.e. 6.6% of the total pension funds.

Download this Note in PDF here.

 

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