MEXICO CITY - The Mexican government approved investment rules for the companies that will manage billions of dollars of workers' funds.
The pension management companies, known as Afores, must invest at least 65% of their assets in government bonds, and they may not invest in the stock market.
"The objective of the new rules is to create a regulatory environment that permits the Afores' investment funds to grant an adequate return to workers in the system, under strict conditions of security and transparency," said a statement released by the Consar, the pension regulatory body. The rules were approved June 27; the new pension system took effect July 1.
In addition to holding at least 65% of its assets in government bonds, the Specialized Retirement Investment Fund, or Siefore, at each Afore also must invest at least 51% of its assets in instruments that retain their real value against inflation. These bonds must either be denominated in UDIs, a special financial instrument that keeps pace with inflation, or else their nominal value or interest rate must be regularly adjusted to inflation. Several types of government- and bank-issued bonds satisfy those requirements.
In a related rule, 65% of an Afore's investments must either have maturities of less than 182 days or else provide for interest rate revisions after the same period. Afore managers criticized that rule as restrictive, because it cuts down on their long-term investment options. But they noted the rule greatly reduces the risk of negative returns, which Consar officials said was the overriding priority for the system's first year of operation.
Each Afore now has one Siefore, but Consar officials say more Siefores will be authorized when the investment regime is liberalized somewhat in July 1998.
Siefores may invest 100% of their assets in government instruments, excluding those from state-owned development banks, but they also are free to build a more diverse portfolio.
For example, Siefores may invest up to 35% of their assets in bonds issued by the private sector, higher than the figure of 20% expected by the Mexican Association of Afores. Up to 10% may be invested in bank issues and another 10% may be used to purchase bonds from other financial companies, such as insurance companies.
"Some of the requirements are more liberal than we expected, but the 10% limit to purchases of bank paper seems restrictive, given that the banks are the principal source of private sector debt today," said Manuel Sarmiento, the director of the Siefore at Afore Bital, Mexico City. "That is likely to create demand in the market for other instruments from the private sector."
Private sector debt eligible for Afore investment must be among the two highest rating levels of qualified rating agencies if it has a maturity of one year or longer, or in the three highest rating levels if it has a maturity of less than one year.
The Consar also announced several investment limits to promote diversification. Siefores may not carry more than 10% of their portfolio in debt from one single company or non-government debt issue, and they may not invest more than 5% of their assets in instruments from any company to which the Afore has a corporate relation, a figure that may be raised to 10% with Consar permission.
The Siefores also may invest up to 10% of their assets in debt denominated in foreign currency, but as with all of their investments, the debt must be issued in Mexico. That limits Siefores to Mexico's U.S. dollar-denominated sovereign debt, which has traded on the Mexican Stock Exchange since April.
Since May, Siefores have been allowed to invest about $5.6 million without restrictions, money they need to hold according to minimum capital requirements.
The first payment of contributions under the new system, when the investment rules will take effect in practical terms, will be made in mid-September. A one-shot transfer of funds from a small, existing pension system also will be made at that time, although details are still unknown.
