LatinFinance - July/August 2015 - 26

actually been declining in recent years.
Private companies show little interest
in going public and are able to access
credit easily, given high bank liquidity. A
lack of diversification of asset allocation
carries across all the funds. "There is little
differentiation, there is not a (particular)
fund that stands out," says Camacho.
Changes afoot
In this kind of market, creating
opportunities for funds to take a stake in a
greater variety of instruments is a timely
concept. This may be in the wind in El
Salvador as well, although the possibility
and nature of a reform there is uncertain.
There is no doubt, however, that reforms to
the pension system is under consideration.
"We don't know what the reform is,
there is no position from the government,
it is not yet being discussed in the treasury
committee of the legislative assembly,"
Javier Mayora, general manager of
El Salvador's stock exchange, tells
LatinFinance.
The movement towards a reform
coincides with the purchase in early May of
75% of El Salvadorian pension fund Confía
by Banco Atlántida of Honduras. The bank
was reported to pay previous owner Citi
around $50 million for the stake. With
the acquisitions, Atlántida gains access to
the 331,000 paying-in contributors and
1.2 million affiliates of Confía who make
up 46% of the affiliates of El Salvador's
pension system, according to pension
superintendency figures.
Until the terms of the reform are made
public, the two Salvadorian funds - Confía
and Crecer - are likely to continue their
traditional investment approach. They
hold 82% of their assets in government
securities, 8.4% in foreign holdings, 6%
in banks, 2.5% in securitizations, 1% in
development finance institutions and
0.8% in Salvadorian listed companies, says
Mayora.
El Salvador's pension law requires that
the funds be invested in an authorized
market. The local Bolsa is the only option -
funds can buy up to half of any deal placed
on the exchange - making it an informed
observer of the pensions industry.
With investment volumes that would
seem small in most other Latin American
markets, El Salvador's
pension funds play an important role in
the local stock exchange. "The impact of
the funds from 1998 to today has been very
positive, especially in the primary market,"

26 L ATINFINA NCE.COM - July/August 2015

Mayora says.
In the first five months of 2015, Confía and
Crecer accounted for 39.45% of investments
on the primary market, worth $74.5 million,
and 28% of the buys ($456 million) and 40%
of the sells ($652 million) on the secondary
market, says Mayora. In recent years,
participation of the funds has been even
higher: in 2014, they accounted for 50% of
placements on the primary market.
Panama is a different case. The private
voluntary fund industry there is still small,
with some 65,000 contributors and accrued

problem that includes the strengthening
of the complementary funds," Roberto E.
Alfaro, general manager of Profuturo, tells
LatinFinance.
Investments of Panama's two voluntary
funds are concentrated in fixed income
instruments, which make up about 70% of
their portfolios. In the case of Profuturo,
the pensions also invest in the manager's
mutual funds, time deposits and shares,
says Alfaro. The law allows up to 25% of
allocations to be made outside of Panama.
Foreign investments of the funds are made

Room to diversify
El Salvador Pension Funds Confia and Crecer Assets

Government Securities
Foreign Holdings
Banks
Securitizations
Development Finance Institutions
Domestically Listed Companies

Source: Bolsa de Valores de El Salvador

assets of about $400 million, or less than
1% of GDP. Nonetheless, the two funds -
Profuturo and Progreso - had double-digit
growth for funds under management last
year. "Today, the impact of pension funds
on capital markets in Panama is minimal,"
says Marielena García Maritano, a director
of the Bolsa de Valores de Panamá and
president of the Chamber of Mutual and
Pension Funds Administrators.
Comprehensive solution wanted
Reform may be in the offing for Panama
as well. There, as elsewhere, voluntary
pension funds operate alongside the
government's pension system, the Caja de
Seguro Social. The Caja has been in deep
deficit for much of the last decade, and
could collapse as soon as 2022 or 2024 if
it is not overhauled, says García Maritano.
However, no reform initiative is in sight
and it would only affect the public pension
scheme, not private voluntary funds. "We
hope the discussion [about the Caja] will
lead to a comprehensive solution to the

principally in US mutual funds and, to a
lesser degree, in sovereign and corporate
bonds issued in Central America and South
America, says Juan Pastor, director and
general manager of Progreso.
The Panamanian funds have performed
well. Progreso maintained an average yield
of 6.38% throughout the 2014 fiscal year,
and the yield for the first five months of
2015 is 6.223%, according to Pastor. From
the time of its founding in 1998 until May
2015, the historic yield is 7.39%, he adds.
That solid yield performance and
growth in assets does not free Panamanian
voluntary funds from hurdles ahead. In
Panama - and in Central America - funds
will need to find ways to maintain their
returns with the US Federal Reserve begins
hiking borrowing costs. "Having many
investments in fixed income instruments of
each issuing country [means] the expected
rise in interest rates will have an adverse
effect on the yields of the funds so long as
their investments are carried to market
value," says Pastor of Progreso. LF
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