Latin Finance - July/August 2010 - 27

mexican buyside

regulations in February to prevent forced selloffs of risky assets during a crisis, which could encourage purchase of such instruments. Some of the largest pension fund managers anticipate a flood of local corporate investments in their usual stomping grounds: telecom, housing, construction and infrastructure – the latter through both CCDs and debt. CCDs are starting the important process of channeling Afores’ cash into vital long-term infrastructure projects, even as investors struggle to understand the structure. Housing holds a special interest for Afores, says Bancomer’s Díaz. The sector suffered shockwaves caused by the US mortgage crisis, Mexican unemployment and Sofol downgrades. But Mexico’s insatiable hunger for real estate remains, Díaz says. “We have a panorama of low inflation and an economic recovery,” Díaz says.

MBS is attractive, says ING’s Solórzano “We expect a domestic recovery, a consumer credit recovery and above all a

recovery in housing consumption.” MBS for low-income housing are especially attractive to Afores due to wide spreads, says Enrique Solórzano, CIO of ING Afore, the third largest pension fund, with 159 billion pesos in assets under management as of April. Infrastructure projects are also being watched closely by Afores as they will likely keep growing under national development plans, and through attractive CFE, Cemex and Pemex issuances, Profuturo’s Reyes says. In addition, Afores mention a growing interest in commercial and consumer sectors, such as retail. A domestic recovery expected in the second half of 2010 should help boost retailers like Soriana after GDP grew 4.3% in the first quarter, says a funds expert at a small Mexican bank. An increase in first-time peso issuers in Mexico, such as miner Peñoles, could also boost Afore participation in private debt, says Profuturo’s Reyes. And some

Rise of the Mutual Funds
exico’s mutual funds are growing at such rapid pace that they could surpass the bulging wallets of Afore pension funds by the year 2015, says Jorge Pérez Sámano, head of asset management at BBVA Bancomer. Sociedades de Inversión, as mutual funds are called, could keep rising annually by over 20% from their current 1.0 trillion pesos to beat Afores, currently totaling around 1.2 trillion pesos, thanks to a growing clientele of close to two million people who are slowly becoming savvier mutual fund investors, claims Pérez. Pérez´s institution held 231 billion pesos in mutual fund assets as of April, the largest of 31 mutual fund managers, according to data from Mexico’s financial intermediaries association AMIB. “By the close of 2012 this market will have grown by almost 70%,” compared to 2010, says Pérez. However, a late May Banamex report notes that mutual funds’ lack of exposure to well-performing long-term government paper has resulted in lower returns versus Afores since 2009. Afore yields in 2009 measured 12.4%, well above mutual funds’ 6.9%, according to the report. Mutual fund clients in Mexico tend to buy low-risk short-term government debt, which during the crisis they sold quickly, causing shortages of liquid instruments in some funds, said José Ángel Montaño, analyst at Moody’s. Funds are beginning to dabble in higher risk debt, “but very selectively,” adds Montaño. Mutual funds have a similar overall composition to Afores of 65% government debt and 14% equity, Banamex states. It adds that mutual funds have had a slightly higher growth average than Afores since 2007, of 21% compared to 19%, and that Sociedades de Inversión surpassed Afores by assets for a few months in 2008. With close to 500 entities and a history of over 40 years, mutuals only began to take off after a 2001 law increased the funds’ transparency, says Montaño. Other leading funds are managed by Banamex, with 226 billion pesos, Santander with 163 billion pesos, Inbursa with 70 billion pesos and Scotiabank with 56 billion pesos, according to AMIB’s April figures. Funds must disclose all investments by company name to the CNBV, says Arnulfo Rodríguez, fixed-income analyst at Banamex-Accival. Bancomer’s Pérez says reports are required every week. Pérez expresses similar investment interests as Afore managers, naming retailers such as Soriana and Walmart, major telecoms, metals and a return of housing opportunity in the second half of 2010. Most of Bancomer’s corporate investment is in equity, he says, noting the bank is in the midst of applying to the CNBV for a new fund focused primarily on stocks. Pérez adds that the process of opening new funds should be quickened from its current four-to-six-months, and calls for regulatory changes allowing commodity investments and creating a framework for capital protected and guaranteed funds. Other funds growing in size in Mexico are private pension plans. A total of 1,809 plans held 331 billion pesos in assets last year, about one third the size of Afores, according Consar. Private plans are more heavily invested in local equity than Afores or mutual funds – with 30% of holdings in stocks, while government debt investment is only 41%. Hedge funds are even less developed in Mexico, where financial institutions are forbidden to commercialize them, Pérez says. “It is 100% private,” he says, adding that there may be less than 10 hedge funds total in Mexico. — Nacha Cattan

July/August 2010

LatinFinance 27

Latin Finance - July/August 2010

Table of Contents for the Digital Edition of Latin Finance - July/August 2010