The possibility that AFP’s (Pension Fund Managing Companies) may invest in alternative assets up to 10% of their portfolio (Law 20,956) will allow more efficient portfolios without adding greater risks, which in the long term could lead to a 10% pension increase. This was pointed out by the Superintendent of Pensions, Osvaldo Macías, during the seminar "The Time Has Come: Investment in Alternative Assets", organized by the Inter-American Association of Journalists of Economy and Finance (AIPEF) and AFP Capital.
The training workshop for journalists also included the participation of Carlos Cruz, Executive Secretary of the Infrastructure Policy Council (CPI) and Francisco Guzmán, Investment Manager of AFP Capital.
During the meeting, the specialists analyzed the new options of investment in alternative assets (foreign private capital, private foreign debt, shares of closed local stock companies, mortgage mutual funds, real estate, SpA’s (local stock companies), limited partnerships, syndicated loans, among others), as well as the supervision role of the Superintendence of Pensions and how the AFPs are preparing for this change in their investment structure.
Osvaldo Macias said that the current total investment in alternative assets amounts to 5,512 million dollars, equivalent to 2.7% of the pension fund (today being 209 billion dollars, representing 74% of the country's GDP).
Regarding the benefits of using these instruments, he mentioned that they deepen the diversification of the portfolio by allowing access to better combinations risk/return, which increase profitability and allow long-term investments such as real estate and infrastructure.
On the implementation of these instruments, the Superintendent stated that the regulation requires that pension managers submit an investment policy to the Superintendence and that, so far, Capital, Habitat and Provida have done so, while Cuprum is in process.
During the debate, Francisco Guzmán highlighted that according to the regulation pension managers can invest in alternative assets between 5% and 10% of the total pension fund, but that the local market estimates such figure will fluctuate between 4% and 6% in Chile. At an international level, according to OECD studies, such percentage is close to 12%, which is why he was optimistic in a coming increase of the current percentage of investment in this type of asset in our country.
The executive added that this adjustment to the AFP's investment regime is a concrete tool to improve returns, which will have a direct positive impact on pensions.
And regarding AFP Capital’s plans in the matter, he emphasized: "with the range of opportunities that the new regime of investments gives us today, we are evaluating about six investment alternatives in both the local and international markets with 3 focuses : private equity, local real estate, and Chilean infrastructure.
In turn, Carlos Cruz said that this project is good news and a good sign for the market, considering that pension funds have been conservative when investing. "Today, when there is history in concessions in the country and the same foreign funds show good results, everything is given to managing companies with operations in Chile to allocate resources directly in infrastructure," he said, showing "some uneasiness" because the process has been slow.
In his opinion, besides the few infrastructure projects that exist, greater complement to the institutional investor by the financial industry is required.
The specialists agreed on the need to strengthen the teams of pension managers with professionals specialized in this type of instruments in order to take advantage of these new investment alternatives for the benefit of their affiliates.
About AFP Capital
AFP Capital is a company of SURA Asset Management Chile whose operations in Chile are pension, insurance, mutual funds and stocks. AFP Capital’s AUM amounts to US$ 40 billion owned by 1.7 million customers. It is present in 30 cities along the country, being the only AFP present in Easter Island,
About SURA Asset Management
SURA Asset Management is a subsidiary of SURA Group, expert in Pensions, Asset Management, Savings and Investments and present in Chile, México, Colombia, Perú, El Salvador y Uruguay. As of December 2017, SURA Asset Management’s AUM amounts to USD$134.9 billion owned by 18.8 million customers.
* Customers and AUM include AFP Protection in Colombia and AFP Crecer in El Salvador, although not controlled companies, SURA AM has a significant stake.