Mexico Pension Funds Need More Options

Mexico’s pension fund industry must evolve if it is to provide private sector workers with decent pensions for retirement, a panel at LatinFinance’s second Cumbre Financiera Mexicana in Mexico City, concluded today. Jose Eduardo Silva, CEO of Afore Profutoro said that pension funds must be able to invest more in floating rate instruments, credit derivatives and structured products to boost returns. Silva acknowledged that while second-stage reforms had helped to broaden investment alternatives, Mexico has not done enough to stimulate competition among pension funds. He noted that although fees had decreased dramatically, not enough has been done to boost performance. Moises Schwartz, chairman of CONSAR, Mexico’s pension fund regulator, noted that pension funds have not embraced the wider range of investment products available to them since the second-stage reforms in 2004 and 2005. Pension funds invested 71% of their assets in government debt last year compared with 95% in 2000 with just over half of the 21 funds preferring to concentrate portfolios in Mexican treasuries. Francisco Gonzalez, CEO of BBVA Bancomer’s Afore and chairman of the national association of pension funds, argued that public-sector funds should join the defined contributions system to create a national pensions system. And the industry must encourage workers to contribute more to pensions on a more regular basis. Pension fund assets in Mexico grew to 8.1% of GDP last year, with $65 billion in assets under management, from 3.1% in 2000, representing a compounded annualized growth of 16%.