Corporate issuers in Mexico want the country’s pension funds, or afores, to diversify their portfolios and provide more funding for companies to meet their capital expenditure requirements, panelists said last week at LatinFinance‘s 11th Cumbre Financiera Mexicana.
More than half of the afores’ investment portfolios is dedicated to government bonds, while only 35% is allocated to corporate issues, said Carlos Garcia Moreno, chief financial officer at local telecommunications company America Movil.
“This is a paradox. We know there are more mutual funds in Mexico than in the past. Yet, we don’t see where that money is flowing and we’re not getting many resources,” he said.
Garcia Moreno also said only three or four of Mexico’s 11 afores are calling the shots in the pension industry, referring to it as the “cartelization” of the sector.
However, Carlos Ramirez Fuentes, head of Mexico’s private pension regulator Consar, said the government has introduced legislation to expand the range of investments for afores. New instruments, such as Fibra-E trusts for energy projects and Cerpi certificates for infrastructure projects, are being introduced to increase investments in other areas, he said.
Ramirez Fuentes said afores have developed rapidly in the past 19 years but added it is “unusual” to have so much invested in fixed income and government bonds.
Afores have grown quickly, a banker agreed, but their development has created a “bottleneck” of resources away from energy and infrastructure projects and primarily in government debt.
A Mexican issuer said afores could provide ample investments on the back of proposed reforms in the real estate, telecommunications and energy sectors but their “concentrated nature” may hinder the development of new projects.
However, sources said they are hopeful the new instruments, such as the Fibra-E, can open more investment opportunities for afores but they added that the scope remains limited until new asset classes emerge. “Telecom, for one, is going through a major overhaul,” Moreno said. “There are new players, so we expect a more dynamic market especially in the mobile sector.”
As AT&T’s expands its presence in Mexico, competition will increase for America Movil’s mobile phone company Telcel, but Moreno said the parent company is poised to invest about $6bn in the mobile phone sector in the next three years. Now the challenge for Mexico is to increase foreign investment in the sector, he added.
Last December, America Movil’s cell tower business Telesites started trading on the Mexican exchange BMV after regulators authorized a share split. Moreno urged other corporates to investigate similar ways to monetize assets and diversify their investment pools but he said regulators first had to expand the investment opportunities for both local and international companies.