Mexico’s pension regulator has recommended an expansion of the Afores’ investment universe as a key measure to improving its pension system.
In its third quarter report to Mexico’s Congress, the Comisión Nacional del Sistema de Ahorro para el Retiro (Consar) said the current framework limits the Afores' field of action and compromises returns.
‘Although Mexico has gradually expanded its investment framework, it’s evident that some of the current limits are absolutely insufficient, which limits the Afores in their possibility to continue diversifying and improving returns,’ according to the Consar's report.
In its report, the Consar said boosting returns by 10% through a wider investment pool could increase the payouts retirees get by 11.19%.
Citywire Americas understands the report is non-binding, though the Consar said expanding the Afores's investment opportunities should be made a priority.
In addition, the regulator called for further diversification in Afore portfolios. The pension funds have invested 71.4% of their assets in fixed income, an ‘unusual level’ for countries in the Organization for Economic Cooperation and Development, according to the Consar.
The Afores should increase and maintain their long-term investments, the report also outlined.
While Mexican pension funds can invest up to 20% of their portfolios in foreign assets, the majority of Afores have yet to take full advantage of this option.
The Afores gained access to global equity markets in 2003 when Mexico created its International Quote System, known as the SIC, where foreign stocks and ETFs are listed. Eight years later, the Consar loosened regulations further to allow the Afores to hire third-party managers to run international investment mandates. However, the new rules didn't allow direct investment in foreign mutual funds.
Of the 11 pension funds in the Mexican market, only four Afores have awarded international investment mandates.
Mexico’s pension system turned 20 on July 1, an anniversary that prompted the Consar to look back at its evolution and recommend changes to improve the framework.
The country’s 11 Afores together ran $3.099 trillion Mexican pesos ($162.8 billion) as of October, or roughly 15% of the country’s GDP, according to Consar data.