The global economic slump is delaying much-needed reforms in emerging pension markets, according to consultants, money managers and academics.
Many emerging economies had been making strides in easing investment limits to globally diversify private-sector pension assets. But as global markets slowed, so did the momentum that had driven many of those reforms.
“If anything, (emerging market governments) are pulling their horns in; they've become more conservative,” said Fiona Stewart, pensions specialist at the Paris-based Organization for Economic Co-operation and Development, an advisory group with 30 member countries, including the United States.
“That said, in the longer term, they may look at this (crisis) as an opportunity to deregulate in order to give pension funds a chance to diversify,” Ms. Stewart added.
One of the most recent examples is Brazil, which had 450 billion Brazilian reais ($203 billion) in total employer-sponsored pension assets at the end of 2007, the latest data available. More than three-quarters of all Brazilian pension assets are in defined benefit plans, including corporate and multiemployer funds, according to data from the OECD. Traditionally, those pension funds have invested heavily in domestic assets, primarily fixed income, because the limit for overseas investments is 3% of the total portfolio. Most funds haven't reached that limit, consultants said.
The Secretaria de Previdencia Complementar, the nation's pension fund regulator, was expected to raise the overseas investment limit to 10% in early 2009. But managers familiar with the matter say the proposal is likely to be postponed because of the global financial meltdown. As pension funds worldwide were hammered by fourth-quarter losses following the collapse of Lehman Brothers Holdings Inc., Brazilian pension funds benefited from their relatively conservative investment stance, experts said.
Last month, President Luiz Inacio Lula da Silva said that the rules governing Brazil's insurance and pension industry protected investments better than their counterparts in the U.S. While interest rates, which are linked to bond yields, have been falling, they are still high compared with those of developed markets. Brazil's benchmark central bank rate is about 11.25%, or 11 percentage points higher than the U.S. Federal Reserve's benchmark rate.
The global credit shock encouraged the Brazilian government to keep more assets at home, according to one manager based in Rio de Janeiro who requested that his name not be used.
Officials from Brazil's SPC and the president's office did not respond to requests for comment.