Latin Finance - September/October 2010 - 52

Andean colombia pension funds

companies to list locally, creating opportunity for diversification. from $29.4 billion in 2009. “What is needed in a market like Colombia’s is for more In Chile, which BAML says has “the most advanced and most companies to access the equities market,” says Jorge Ramos, sustainable pension system in LatAm,” pension funds’ AUM is expected to increase to $124.6 billion equivalent, or 64% of GDP, president of ING’s Colombian pension fund, which has about $5 billion equivalent in assets under management (AUM). “There in 2010. This compares to $117.9 billion equivalent in 2009. As of April, 42.1% of compulsory pension funds’ portfolios in are still many important Colombian companies of excellent Colombia were invested in government debt, 33.4% was invested reputation that are not publicly traded.” The first half of 2010 has seen little in terms of new equity in local equities, 10.4% in local fixed income, 7.8% in foreign from Colombia. Local financial company Davivienda had equity, 3.2% in foreign fixed income and 3.1% in other types of launched an IPO in August that could raise as much as $500 securities, according to data from the superintendent. million, according to León. This is the first domestic IPO since When the multi-fund system kicks in, the most aggressive Helm Banco de Crédito raised $113 million in December 2007, of the multi-funds can invest up to 70% of its portfolio in equity according to Dealogic. and the entire amount may be invested in foreign stocks, while Also, Canadian oil company Canacol in late July began there is a limit of 45% for investing in local equity. Meanwhile, trading its shares, which also trade on the TSX Venture up to 45% of a moderate fund portfolio can go to stocks, with Exchange, on the Bolsa de Valores de Colombia (BVC). However, up to 35% domestically. A conservative fund portfolio, of which this did not entail the issuance of new shares. up to 20% may be invested in equities, can invest a maximum of And constraints on local 15% locally, says Luis Jiménez, liquidity mean that larger director of economic research Assets of Main Colombian Pension Funds (COP, bn) issuers will still opt for foreign of Asofondos, Colombia’s Growing steadily exchanges. Grupo Aval, for pension fund association. example, plans to list in New Jiménez does not expect Pension Fund Assets York as soon as October, that a bigger equities allowance May-09 May-10 Change according to people familiar will significantly boost the flow Protección 17,034 21,649 27.10% with the transaction. Credit to stocks. “For the past two Suisse and JPMorgan have been years, an average of $1 billion Porvenir 18,454 23,182 25.60% hired to manage the deal, which has been allocated to local BBVA Horizonte 11,179 13,821 23.60% is expected to raise as much as and foreign equity,” he says. ING Pensiones 7,959 9,856 23.80% $2 billion. With the multi-fund system, he expects the amount to increase Skandia 3,265 4,143 26.90% Disclosure Barriers to about $1.2 billion annually. Skandia Alternativo 119 158 32.30% Correval and the Colombian As for fixed income, it Citi Colfondos 9,762 12,231 25.30% stock exchange, among others, currently can make up 100% have embarked on campaigns to of a pension fund’s portfolio, Total 67,772 85,040 25.50% try and convince local privately with up to 50% of it invested Source: Financial Superintendent of Colombia held companies of the benefits in local public debt, according of going public. “Many of these to Alcides Vargas, president companies are not comfortable with the information disclosure of pension fund Colfondos, which has 12 trillion pesos in assets requirements going public brings,” says León. under management. She explains that this is not because publicly traded companies in Colombia are required to reveal more information More Demand, More IPOs? than that required of companies trading on the NYSE or Bovespa, It could be argued that if most of the money goes to local it is simply a reluctance to make material information public. equities that increased demand could cause Colombian stocks “The disclosure requirements in Colombia are in line with to be overvalued, especially since there are few publicly listed international standards,” León says. companies locally. In order to avoid over heating the local equities market, “The increase in demand [for Colombian stocks] could increase their valuation multiples, making them seem expensive pension funds could also look to invest in stocks in foreign to foreign investors who might then decide not to invest locally,” exchanges. Ramos says increased allocations by pension funds should encourage more investment in foreign stocks. Peru and León says, adding that already Colombian stocks are slightly Chile would be the most obvious targets, as integration of the expensive in terms of multiples. stock exchanges in those countries with that of Colombia provide As of August, Colombia’s IGBC index had appreciated 29% an avenue to invest. since August 2009 and 50% since August 2008. In comparison, “In these countries there are many companies that are well Brazil’s Bovespa index had appreciated 22% since August 2009 known in Colombia and pension funds see the integration of and 23% since August 2008. the exchanges as a great opportunity for diversification,” says However, pension fund executives think equities Ramos. overvaluation is avoidable. For instance, some expect increased The new multi-fund system is also expected to allow demand for stocks to encourage privately held Colombian

52 LatinFinance

September/October 2010

Latin Finance - September/October 2010

Table of Contents for the Digital Edition of Latin Finance - September/October 2010