The move to separate accounts could allow major active global players like JPMAM a chance to scoop up assets in Mexico while providing AFOREs with the required transparency. “If you're just starting out (in separate accounts), you're not going to go with a boutique or smaller manager,” Mr. Sweigart said. “I think it's going to go to the big boys.”
Offshore investments made by retirement systems in Mexico are expected to grow by $35 billion in the next five years, according to the Cerulli report. However, Mr. Ciampi questioned whether separate accounts will ever be attractive to managers, in terms of size or costs, and whether AFOREs will ever invest much offshore.
“The idea of selling international allocations is very hard because there are important factions within the (Mexican) government that don't want it to happen,” he said. “It's a very, very contentious issue.”
AFOREs now invest 10% of total assets in international equity and 3% in international fixed income, according to the Mexican pension regulator.
One country that would benefit from an increase in overseas investment is Peru, experts said. A proposal to increase the ceiling to 50% from the current 30% won preliminary approval this spring, but had been on hold pending the outcome of this month's presidential elections, won by left-wing candidate Ollanta Humala. “We're waiting to see in the next month or so what will happen,” Mr. Sweigart said. Peru's total retirement assets were about 83 billion soles ($30 billion) as of May 31, according to the country's central bank. That figure has tripled in U.S. dollar terms since Dec. 31, 2005.
Offshore investments made by retirement systems in Peru will grow by $25 billion in the next five years, according to Mr. Ciampi.
Managers also would like to see a higher ceiling in Brazil, although investors in that country seem entirely uninterested in venturing offshore. Brazil only recently allowed retirement funds to invest up to 10% overseas.
Hedge fund VR Capital Group looked to set up a global fixed-income fund of funds in Brazil, along with a currency overlay to protect against further value hikes in the real, said Lauro Araujo, who was head of sales in Brazil at VR Capital. But the manager jettisoned its plans — and Mr. Araujo — after it became clear Brazilian corporate pension funds were sticking with domestic investments, he said.
“It's hard to get the (trustee) board to approve offshore investments because of the lack of knowledge” about complex investment strategies, said Mr. Araujo, who's now an independent investment consultant. The learning curve — coupled with the fact that the Brazilian central bank has hiked interest rates to combat inflation and foreign inflows — explains investors' reluctance, he said. “If interest rates go down, they'll have to start looking for higher-yielding investments. But so far, there's not really any interest in doing that.”
Mr. Ciampi sees Colombia as another key growth country, as investors there are sophisticated. Growth of its 118.4 trillion pesos ($66 billion) national retirement system is a decade behind that of Chile, but is expected to add another $40 billion in offshore investments in the next five years, he said.
Mandatory pension fund assets “is the most obvious area of continued growth” across the region, Daniel Gamba, New York-based managing director and head of BlackRock's Latin America and Iberia business, wrote in an e-mail. “That trend will continue in Chile, Peru, Colombia and Mexico at 15% to 20% (a year), half due to new inflows and half due to market movements.” BlackRock runs about $20 billion in retirement assets in Latin America.