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FIAP > Press Releases > Peru: “The Peruvian pension industry should grow at the same rate as the country” – interview with Aldo Ferrini, Assistant General Manager of AFP Integra

Peru: “The Peruvian pension industry should grow at the same rate as the country” – interview with Aldo Ferrini, Assistant General Manager of AFP Integra

18 September, 2013

Source: http://www.fundsamericas.com

The pension funds manage equity of more than US$ 36 billion in Peru, and are the main asset management players in the country. After the sale by BBVA of 50% of AFP Horizonte to Profuturo, of Scotiabank, and the other 50% to Integra, of SURA, the latter fund manager has consolidated its leadership in the market. It has approximately 14,500 million dollars under management, with a market share of 41%. Its Deputy General Manager, Aldo Ferrini, analyzes the situation and strategy of AFP Integra and the future of the Peruvian social security system in this interview.

The purchase of 50% of AFP Horizonte was a meaningful transaction. In what position does that leave you?

It has been interesting and swiftly handled. SURA has strengthened its commitment to pensions which began with the purchase of the assets of ING Latin America. With this acquisition we were able to consolidate the leadership of Integra in Peru, and will serve more than two million customers, and manage more than PEN 40,000 million (between US$ 14,500 and US$ 15,000 million). We have achieved a market share of 41%. That is significant, but the important thing is the benefits being provided for members and the fact that it strengthens the system with more robust investment teams. Members are in a good situation, with teams that must be trained to obtain better results at lower cost.

Are you going to reduce commissions, as announced some time ago?

After the acquisition, we announced a reduction for Integra customers, which was already implemented in September 2013.

What strategy will you follow after the merger?

Our challenge is to maintain the number of members, to prove to those arriving from Horizonte that we are a first class company, capable of providing returns which, from my point of view, are very good, above the market average. We have incorporated a significant part of the Horizonte investment team, creating a robust team with the ability to generate good results.

In Chile, each one of the AFPs offers five Multifunds per risk level. Will the Multifunds in Peru increase from the current three?

Here we currently manage three funds based on the age and risk profile of members. The regulatory changes in mid 2012 added a low-risk fund that has not been implemented as yet. In mid-2014 all the fund managers will have four options. It is important for members to be able to choose the fund most suited to their investment horizons, because a 30-year-old worker does not have the same profile as a 60-year-old and can invest long-term and take greater risks.

Are transfers between funds common in Peru?

It is just as easy as in Chile, and there have been times of greater intensity of transfers. But I think it is more important for members to decide which fund they want to be in than changing all the time.

Do members have a good level of statistics at their disposal?

The Superintendency of Banks, Insurance and AFPs (SBS) publishes weekly and monthly reports with data, and the AFPs also provide information to their clients. More information can always be given, but the most important thing is that it can be understood by all members within the diversity we have. There are more sophisticated clients and clients who do not understand too much about investment, and one has to try to communicate with all of them; that is the great challenge we face. It’s not so much about providing information, but providing the appropriate information for the different profiles.

Can customer service to the members of the Peruvian social security system be improved?

There is always room for improvement. I believe that implementing more virtual channels could be a means of improving the level of service, and as I said, could provide appropriate information to each profile or group of clients.

Does the Peruvian pension industry have much growth potential?

It is going to grow, because there is still a great degree of informality in the country, wages that can increase, and we are growing at 5% or 6%, as forecasted, so the pension sector should grow in a similar manner.

Do you take any notice of Chile?

Chile is the best-known point of reference, it was the pioneer. But today there are several countries with a very interesting degree of maturity, on several fronts and with standards that are replicable. Mexico, Colombia, Peru and Chile are implementing reforms that could quite perfectly be considered by the rest.

It has been a bad year for the Peruvian stock exchange. Are you affected by the fact that the foreign investment limit is 36%, compared to 80% in Chile, for example?

The Peruvian stock market is almost 20% negative, and if you compare it with Fund 3, which is the one with the most variable income, with a limit of 80%, it is one point positive. What this shows is that diversification helps. The foreign investment limit has been increasing; I believe that the Central Bank is doing a good job. It is a limit that will grow in time. Chile did the same; it maybe took longer than we did to extend it, although today, with 15 years more history, they are further ahead. We will always ask for more, allowing greater room for maneuver, but for now I think that the relationship between the Central Bank, the Superintendency and the AFPs is positive.

Will it reach 40% this year?

It’s hard to say, but I do not think it will end at 40%. It would be healthy, but it’s not a variable we are permanently concerned about. It is more important for the regulator to focus on other changes that must be made, such as relaxing the derivatives rules and regulations to hedge risks more efficiently.

What percentage will it reach in the mid or long-term?

It’s too soon to say; we have to go step by step. The law envisages 50%, and it is in the hands of the Central Bank to allocate this limit. When we get there, it will be a good time to decide whether to increase it or not; in fact, not all the AFPs have reached the current 36% today.

What percentage does AFP Integra have?

We are at about 35.5%. We are not at 36% for safety’s sake, so as not to exceed the limit.

Continuing with your AFP, what is the investment process like?

Broadly speaking, we define our asset allocation in the long term, and we define the main trends there will be in the investment world. For example, if interest rates are going to move up or down, we accommodate the portfolio according to our regulatory external limits and those we impose on ourselves internally. Once we have determined the asset allocation, we begin to define the country or region we assign the highest value to in the long run, and buy funds, ETF or stock, if it is in Latin America.

Is all foreign investment performed through third-party funds? Do you prefer funds or ETFs?

It depends on the market; we have different approaches. For example, in emerging markets we prefer Mutual Funds, and in more liquid markets like the United States we like ETFs, which are interesting for us. In Latin America we do have the ability to do more responsible, comprehensive and quantitative analyses of companies, and we can make direct investments. But buying a bond or share in Malaysia, for example, is not our forte.

How do you choose a specific fund or ETF?

First we determine whether it is a fund or an ETF. We buy ETFs for more tactical reasons and appreciate the cost and liquidity. When we go for funds, it is for a period of at least one year; you buy a strategy. We have a quantitative evaluation methodology for choosing; we group all the funds that meet the criteria we are looking for and evaluate quantitative variables first as tracking errors, costs, profitability in different periods, etc.; each variable has a weight, and we rank the funds. We focus on the first quintile and then take a qualitative approach to decide.

Do you use socially responsible investment criteria?

Good corporate governance in the companies in which we invest is essential. Abroad, for example, we do not invest in companies with a bad reputation. Locally it is a process that has been improving over time as companies grow; we do bear that in mind. We are quite active in this regard.

Do your different funds make recommendations to your customers?

We do not do that. What we try to promote is for the customer to make a self-assessment, because each individual has a risk profile, and gauging the three portfolios we currently manage, he can make a decision. But we do not make transfer recommendations and I do not think that it is good for members.

Are there fund transfer consultants in Peru, like Felices y Forrados in Chile?

No, and I don’t think they are consultants, but rather market analysts. To provide advisory services you have to take into account the particular risk profile of each member. A consultancy should be more than trying to predict the market.

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FIAP > Press Releases > Peru: “The Peruvian pension industry should grow at the same rate as the country” – interview with Aldo Ferrini, Assistant General Manager of AFP Integra
18 September, 2013

Peru: “The Peruvian pension industry should grow at the same rate as the country” – interview with Aldo Ferrini, Assistant General Manager of AFP Integra

Source: http://www.fundsamericas.com

The pension funds manage equity of more than US$ 36 billion in Peru, and are the main asset management players in the country. After the sale by BBVA of 50% of AFP Horizonte to Profuturo, of Scotiabank, and the other 50% to Integra, of SURA, the latter fund manager has consolidated its leadership in the market. It has approximately 14,500 million dollars under management, with a market share of 41%. Its Deputy General Manager, Aldo Ferrini, analyzes the situation and strategy of AFP Integra and the future of the Peruvian social security system in this interview.

The purchase of 50% of AFP Horizonte was a meaningful transaction. In what position does that leave you?

It has been interesting and swiftly handled. SURA has strengthened its commitment to pensions which began with the purchase of the assets of ING Latin America. With this acquisition we were able to consolidate the leadership of Integra in Peru, and will serve more than two million customers, and manage more than PEN 40,000 million (between US$ 14,500 and US$ 15,000 million). We have achieved a market share of 41%. That is significant, but the important thing is the benefits being provided for members and the fact that it strengthens the system with more robust investment teams. Members are in a good situation, with teams that must be trained to obtain better results at lower cost.

Are you going to reduce commissions, as announced some time ago?

After the acquisition, we announced a reduction for Integra customers, which was already implemented in September 2013.

What strategy will you follow after the merger?

Our challenge is to maintain the number of members, to prove to those arriving from Horizonte that we are a first class company, capable of providing returns which, from my point of view, are very good, above the market average. We have incorporated a significant part of the Horizonte investment team, creating a robust team with the ability to generate good results.

In Chile, each one of the AFPs offers five Multifunds per risk level. Will the Multifunds in Peru increase from the current three?

Here we currently manage three funds based on the age and risk profile of members. The regulatory changes in mid 2012 added a low-risk fund that has not been implemented as yet. In mid-2014 all the fund managers will have four options. It is important for members to be able to choose the fund most suited to their investment horizons, because a 30-year-old worker does not have the same profile as a 60-year-old and can invest long-term and take greater risks.

Are transfers between funds common in Peru?

It is just as easy as in Chile, and there have been times of greater intensity of transfers. But I think it is more important for members to decide which fund they want to be in than changing all the time.

Do members have a good level of statistics at their disposal?

The Superintendency of Banks, Insurance and AFPs (SBS) publishes weekly and monthly reports with data, and the AFPs also provide information to their clients. More information can always be given, but the most important thing is that it can be understood by all members within the diversity we have. There are more sophisticated clients and clients who do not understand too much about investment, and one has to try to communicate with all of them; that is the great challenge we face. It’s not so much about providing information, but providing the appropriate information for the different profiles.

Can customer service to the members of the Peruvian social security system be improved?

There is always room for improvement. I believe that implementing more virtual channels could be a means of improving the level of service, and as I said, could provide appropriate information to each profile or group of clients.

Does the Peruvian pension industry have much growth potential?

It is going to grow, because there is still a great degree of informality in the country, wages that can increase, and we are growing at 5% or 6%, as forecasted, so the pension sector should grow in a similar manner.

Do you take any notice of Chile?

Chile is the best-known point of reference, it was the pioneer. But today there are several countries with a very interesting degree of maturity, on several fronts and with standards that are replicable. Mexico, Colombia, Peru and Chile are implementing reforms that could quite perfectly be considered by the rest.

It has been a bad year for the Peruvian stock exchange. Are you affected by the fact that the foreign investment limit is 36%, compared to 80% in Chile, for example?

The Peruvian stock market is almost 20% negative, and if you compare it with Fund 3, which is the one with the most variable income, with a limit of 80%, it is one point positive. What this shows is that diversification helps. The foreign investment limit has been increasing; I believe that the Central Bank is doing a good job. It is a limit that will grow in time. Chile did the same; it maybe took longer than we did to extend it, although today, with 15 years more history, they are further ahead. We will always ask for more, allowing greater room for maneuver, but for now I think that the relationship between the Central Bank, the Superintendency and the AFPs is positive.

Will it reach 40% this year?

It’s hard to say, but I do not think it will end at 40%. It would be healthy, but it’s not a variable we are permanently concerned about. It is more important for the regulator to focus on other changes that must be made, such as relaxing the derivatives rules and regulations to hedge risks more efficiently.

What percentage will it reach in the mid or long-term?

It’s too soon to say; we have to go step by step. The law envisages 50%, and it is in the hands of the Central Bank to allocate this limit. When we get there, it will be a good time to decide whether to increase it or not; in fact, not all the AFPs have reached the current 36% today.

What percentage does AFP Integra have?

We are at about 35.5%. We are not at 36% for safety’s sake, so as not to exceed the limit.

Continuing with your AFP, what is the investment process like?

Broadly speaking, we define our asset allocation in the long term, and we define the main trends there will be in the investment world. For example, if interest rates are going to move up or down, we accommodate the portfolio according to our regulatory external limits and those we impose on ourselves internally. Once we have determined the asset allocation, we begin to define the country or region we assign the highest value to in the long run, and buy funds, ETF or stock, if it is in Latin America.

Is all foreign investment performed through third-party funds? Do you prefer funds or ETFs?

It depends on the market; we have different approaches. For example, in emerging markets we prefer Mutual Funds, and in more liquid markets like the United States we like ETFs, which are interesting for us. In Latin America we do have the ability to do more responsible, comprehensive and quantitative analyses of companies, and we can make direct investments. But buying a bond or share in Malaysia, for example, is not our forte.

How do you choose a specific fund or ETF?

First we determine whether it is a fund or an ETF. We buy ETFs for more tactical reasons and appreciate the cost and liquidity. When we go for funds, it is for a period of at least one year; you buy a strategy. We have a quantitative evaluation methodology for choosing; we group all the funds that meet the criteria we are looking for and evaluate quantitative variables first as tracking errors, costs, profitability in different periods, etc.; each variable has a weight, and we rank the funds. We focus on the first quintile and then take a qualitative approach to decide.

Do you use socially responsible investment criteria?

Good corporate governance in the companies in which we invest is essential. Abroad, for example, we do not invest in companies with a bad reputation. Locally it is a process that has been improving over time as companies grow; we do bear that in mind. We are quite active in this regard.

Do your different funds make recommendations to your customers?

We do not do that. What we try to promote is for the customer to make a self-assessment, because each individual has a risk profile, and gauging the three portfolios we currently manage, he can make a decision. But we do not make transfer recommendations and I do not think that it is good for members.

Are there fund transfer consultants in Peru, like Felices y Forrados in Chile?

No, and I don’t think they are consultants, but rather market analysts. To provide advisory services you have to take into account the particular risk profile of each member. A consultancy should be more than trying to predict the market.