Mexico s pension system: a growing funding source for long term and productive projects

Transcription

1 Mexico s pension system: a growing funding source for long term and productive projects May, 2013

2 Contents I. Introduction II. Investment Overview of Mexico s Pension Funds III. Funding through Structured Instruments IV. Challenges ahead

3 Introduction Ø e pension system was created in 1997 for private sector employees as a result of a reform to a traditional (unfunded) pay-as-you-go system. Ø is reform introduced a fully-funded Defined-Contribution system based on individual accounts managed by private agents (AFORES). Ø Since 2007, new public-sector employees and those who opted for the AFORE System were incorporated to the pension fund system. Ø Currently there are 12 AFORES in the market that manage 48.5 million accounts, although only 20 million are regular contributors. Ø As of April 2013, Pension Funds manage more than 170 USD billion (2,075,410 MXN millions). 1 Ø e AFORES, through their funds, invest the employees mandatory savings guided by CONSAR investment regime. 1/ FIX Exchange Rate of as of April 30, Source: BANXICO.

4 The rapid growth of the assets under management represents a great opportunity, but also significant challenges Pension Funds manage 2,075,410 millions of MXN. AUM represents 13.4% of Mexico s GDP In the last 10 years, the AUM have grown on average 19.4% annually. Net assets represents 22.92% of the domestic savings. Figures in millions of pesos at the end of April Exchange rate: MXN/USD.

5 Contents I. Introduction II. Investment Overview of Mexico s Pension Funds III. Funding through Structured Instruments IV. Challenges ahead

6 Since the creation of the pension system, CONSAR has set four basic investment goals Security of resources Provide better pensions Promote financial market depth Contribute to economic growth Diversify investment portfolios Promote sustainable high yields Financial innovation, more liquidity and better price formation Promote productivity and finance projects 6

7 With these goals in mind, CONSAR has made gradual but significant adjustments to the investment regime throughout 15 years of the system 1998 Federal Government securities 2001 Derivatives and Securities Lending 2002 Value at Risk (VaR) 2005 Foreign securities and equity 2007 Structured Instruments (ad hoc Private Equity Funds and Real Estate Trusts) Basic Pension Funds. Net Return Index 2010 IPOs and subordinated debt 2011 New eligible countries. Commodities. Mandates (segregated accounts) Conditional VaR to control derivatives. 4 Basic Pension Funds + Pay-out Fund. 7

8 The current investment regime authorizes asset classes and set up investment limits 8

9 Current investment opportunities comprise the majority of asset classes used by international pension funds Currently there are six asset classes: Asset classes allowed within the Investment Regime of Pension Funds Debt P P P P P P P P P P P P P P P P Currencies P P P P P P P P P P P P P P P P Equity O O O O O O O O P P P P P P P P Structured Securities: CKDs (Mexican Private Equity) y FIBRAS (Mexican REITs) O O O O O O O O O O P P P P P P Securitizations O O O O O O O O O O P P P P P P Commodities O O O O O O O O O O O O O O P P Within each asset class, restrictions have been relaxed: international stock picking (thru mandates), international debt with investment grade, relaxed issuer limits for debt, etc. 9

10 This broader set of investment opportunities has translated into a lower concentration in securities issued by Mexico s federal government Participation in Government Securities in the Pension Funds portfolios Percentage Dec % Dec % April % Figures in millions of pesos at the end of April 2013 Source: CONSAR Financial Vice-presidency 10

11 and encouraged a higher diversification of Pension Funds Portfolios Evolution of the participation of asset classes in the Pension Funds portfolios 0% 8.4% 10.2% 0% 3.5% 3.0% 9.3% 8.7% 3.0% 8.0% 1.9% 8.3% 2.6% 2.7% 17.3% 17.6% 17.8% LAST TWO YEARS 0.1% 14.2% 2.1% 9.1% 3.8% 17.5% 60.2% 58.5% 58.9% 53.2% Goverment Securities Local Debt Structured Local Equity Foreign Debt Foreign Equity Securities Commodities Figures in millions of pesos at the end of April 2013 Source: CONSAR Financial Vice-presidency 11

12 Pensions funds are increasing their portfolio duration consistent with their long term objective Evolution of the Weighted Average Maturity Federal Government Public Debt Basic SIEFORES 4,846 days PPP 2,841 days Figures at the end of April Information of the Federal Government Public Debt by the Central Bank last published date (February 2013). Source: CONSAR Financial Vice-Presidency 12

13 An increasing amount of the workers savings are being channeled to finance productive projects generating a virtuous cycle Employee s savings Economic growth Macroeconomic stability Private Pension Fund System Employment Financing productive investments Returns to workers 13

14 Likewise, The liberalization of the investment regime has allowed differentiation between AFORES and, overall, competitive returns SB4 Net Return Invercap 14.40% SURA 13.98% Profuturo GNP 13.35% Banamex 13.32% MetLife 13.21% Principal 12.80% PensionISSSTE 12.59% XXI-Banorte 12.53% Azteca 9.92% Coppel 8.77% Afirme Bajío 8.74% Inbursa 6.51% Simple Average 11.68% Weighted Average 12.67% SB3 Net Return Invercap 12.96% SURA 12.48% PensionISSSTE 12.34% MetLife 11.83% Profuturo GNP 11.65% Banamex 11.63% XXI-Banorte 11.49% Principal 11.47% Azteca 10.12% Coppel 8.52% Afirme Bajío 8.37% Inbursa 6.12% Simple Average 10.75% Weighted Average 11.43% SB2 Net Return Invercap 11.37% PensionISSSTE 11.35% SURA 11.00% Profuturo GNP 10.90% MetLife 10.64% Principal 10.59% XXI-Banorte 10.54% Banamex 10.52% Azteca 9.00% Coppel 8.06% Afirme Bajío 7.62% Inbursa 5.65% Simple Average 9.77% Weighted Average 10.38% SB1 Net Return Invercap 10.11% PensionISSSTE 9.90% Profuturo GNP 9.49% SURA 8.91% XXI-Banorte 8.83% Principal 8.80% MetLife 8.60% Banamex 8.59% Azteca 7.31% Afirme Bajío 7.05% Coppel 7.05% Inbursa 5.32% Simple Average 8.33% Weighted Average 8.93% ü Returns depends on the use of the investment regime. ü Differences in performance between Afores are already significant. Figures in millions of pesos at the end of April 2013 Source: CONSAR Financial Vice-presidency 14

15 and more competition has also led to lower fees, although they still have a long way to go Pension System implicit management fee* * Weighted average fees. 15

16 Contents I. Introduction II. Investment Overview of Mexico s Pension Funds III. Funding through Structured Instruments IV. Challenges ahead

17 The financing of private equity in Mexico has grown, in good part, thanks to the AFORES Structured Instruments were designed to: Enhance portfolio diversification and provide competitive returns Allow financing for real productive projects and firms in different stages CKD ü Transparent, flexible and secured financial structure. ü Mitigate potential problems of asymmetric information. ü Comply with the regulations of the Law of SAR. FIBRA ü Corporate governance in accordance with the Securities Market Law. ü Public offering and intraday prices mitigate problems of incomplete information and liquidity risk. 17

18 Structured Instruments (CKDs and FIBRAs) were authorized in 2007 and its investment limits have been gradually relaxed Evolution in the investment limits of Structured Instruments. 18

19 Structured instruments are an important factor in portfolio diversification Pension Funds have participated in 27 CKDs and 5 FIBRAS e total amount of funding in FIBRAS and CKDs is 82,942 millions of MXN Pension Funds have invested in CKDs 62,302 millions of MXN (90% of total issuance) Pension Funds have invested in FIBRAS (and its re-issuances) 20,640 millions of MXN (20.4% of total issuance) 61,941 millions of MXN have allocated to fund Infrastructure and Housing projects through CKDs and FIBRAS 21,001 millions of MXN (CKDs) have been allocated to finance Private Equity and other projects other than Infrastructure, Housing and Real Estate Figures at the end of April Source: CONSAR Financial Vice-presidency 19

20 Evolution of the total investments in Structured Instruments: CKDs and FIBRAS 16,000 14,000 12,000 10,141 CKDs + FIBRAs 13,658 TOTAL: $82,942 millions of MXN ($6,829 millions of USD) 10,000 8,000 6,000 4,000 2,000 2,549 3,292 1,325 1,130 3,841 2,949 2,826 2,481 2,402 2,312 1, ,663 1,588 1, ,977 4,342 2,683 2,726 2, ,369 2,045 1,218 1,350 - Agropecuaria Santa Genoveva Red de Carreteras de Occidente MACQUARIE WAMEX Capital Atlas Discovery México NAVIX Nexxus Capital IV General Partner PLA Inmuebles Industriales AMB Mexico Manager Infraestructura Institucional PROMECAP Artha Operadora MARHNOS Vertex Real Estate EMX Capital Capital Inmobiliario Grupo Inmobiliario MEXIGS 3 Grupo Inmobiliario MEXIGS 3 Fibra Uno Administración GRUPO MRP Credit Suisse Finsa Real Estate Managment Axis Capital Management Planigrupo Management LATIN IDEA Grupo Bursatil Mexicano Northgate Capital Pine Bridge Fibra Hotelera Mexicana Macquarie México Real Estate Managment Asesor de Activos PRISMA PLA Administradora Industrial Note: e following re-issuances has been registered: CKD of Nexxus Capital in October 27, 2010; CKD of WAMEX in December 9, 2011; CKD of Pine Bridge in September 28, 2012 and; Fibra Uno in March 29, 2012 and January 30, Figures in millions of MXN at the end of April

21 There is plenty of room to invest in CKDs and FIBRAS Capacity for CKDs and FIBRAS focused on infrastructure, housing and real estate: $167,408 millions of MXN (13,783 millions of USD) Net Asset Total of Limit Consumption Available SB1 137, SB2 621,527 62,153 16,603 45,550 SB3 649,593 84,447 23,754 60,693 SB4 635,992 82,679 21,514 61,165 Total 2,044, ,279 61, ,408 Capacity for CKDs focused on private equity and others projects: $100,070 millions of MXN (8,239 millions of USD) Net Asset Total of Limit Consumption Available SB1 137, SB2 621,527 31,076 5,026 26,050 SB3 649,593 45,472 8,077 37,394 SB4 635,992 44,519 7,894 36,625 Total 2,044, ,067 20, ,070 Complementary Savings 30, Complementary Savings 30, Figures at the end of April Exchange rate: MXN/USD. * e informative prospect must adhere to the SAR law and the applicable dispositions of CONSAR. **Siefore Básica 1 is not allowed to invest in Structured Instruments. Source: CONSAR Financial Vice-presidency 21

22 Regulatory Limits are clearly underexploited. For CKDs and FIBRAS focused on infrastructure, housing and real estate For CKDs focused on private equity and others projects e challenges to the AFORE are to find relatively-secured and profitable projects and more sophisticated tools to analyze them. Figures at the end of April * e informative prospect must adhere to the SAR law and the applicable dispositions of CONSAR. Source: CONSAR Financial Vice-presidency 22

23 participation of Afores in new asset classes and more sophisticated instruments will be encouraged (although through market mechanisms) AFORE s Participation (Holding) Vehicle Total outstanding (millions of MXN) AFORE participation (%) CKDs 69, % FIBRAs 100, % IPOs 109, % Figures in millions of MXN at the end of April

24 Contents I. Introduction II. Investment Overview of Mexico s Pension Funds III. Funding through Structured Instruments IV. Challenges ahead

25 The assets under management will continue to grow rapidly in the coming years Note: e contributions of the period are those that were collected during the current year. e accumulated contributions are the sum of the contributions in previous years. e performance is the difference between the managed assets by SIEFOREs and the sum of the contributions of the period and cumulatively. Figures in billions of pesos. 33

26 Main Challenges ahead CKDs Adapt CKDs to International Private Equity Funds (unlisted). Allow investments in other countries. Incentivize the participation of different investors. Due diligence efforts of Afores should be focused on the capabilities of fund managers. Diversify investments in Mexico. FIBRAS Standardize the fiscal regimes of all Mexican States. 26

27 Main Challenges Corporate Governance Create incentives for sustainable and consistent fund performance Professionalization of committees and officers of the Afore Development of the financial markets Encourage the formation of prices, liquidity and market depth Facilitate access to financial markets for new issuers Increase the variety of available investment tools 27

28 Main Challenges Regulatory framework Continue the liberalization and full exploitation of the investment regime Incentivize more competition in the sector: performance, fees and services Improve oversight mechanisms Reveal better and easier information to the public 28

29 Mexico s pension system: a growing funding source for long term and productive projects May, 2013