Mexican pension funds will be allowed to invest in foreign mutual funds for the first time from 2018, the country's retirement regulator has announced.
As reported by El Economista, Carlos Ramírez, the head of la Comisón Nacional del Sistema de Ahorro para el Retiro, (Consar), said that Mexico needed to press ahead with a major reform to its pensions system.
One of the first steps the pension regulator will take to improve Mexico’s Afore pension system, a compulsory contribution system which was put in place in 1997, will be to allow the pension fund to invest in foreign mutual funds rather than using the current mandate scheme, according to Mexican news site, Milenio.
It reported that in early January, there will be modified regulations that will also expand the list of countries the pension funds can invest in, primarily in Asia.
This move follows a recommendation from Consar in November to expand Afores’ investment universe to improve the pension system. In its report, the Consar said boosting returns by 10% through a wider investment pool could increase the payouts retirees get by 11.19%.
Mexican pension funds can invest up to 20% of their portfolios in foreign assets, however 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.