Peru's Largest Pension Raises Investment in Emerging Markets

Higher returns on investment by Peru's four pension funds have caused them to seek an increase in the limit on their oversees investments.

(May 3, 2010) — AFP Integra SA, Peru’s largest private equity pension fund, plans to raise its investment abroad in emerging markets, should the central bank increase its overseas holdings limit.

“We’re growing much quicker than the alternatives for investment locally,” de las Casas said to Bloomberg. “We want to diversify our portfolio and emerging markets look promising.”

According to the news service, Integra has upped its proportion of investments in foreign assets to 24% from 20% at the end of March as the global economy rebounds.

Greater returns on investment by Peru’s four pension funds, which manage $25 billion, have caused them to seek an increase in the limit on their oversees investments.

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The funds had 21% of their assets abroad as of March 31, up from 14% a year earlier, according to Bloomberg. Currently, 24% in overseas holding is the limit for private pension funds set by Peru’s central bank, but the central bank is poised to raise the cap on foreign investments to 26%, with foreign assets potentially climbing to 50% of the funds’ total investments.

Growth in emerging markets and developing countries is projected to be above 6.25% a year, following a growth of only 2.5% last year. The governments of many developing countries are working at maintaining a balance between domestic growth and moderating the inflows from investors abroad, which could contribute to inflation, the Financial Times reported.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

DB, DC Funds Could Suffer From Swap Regs; FDIC Chairman Slams Derivatives Spinoffs

Pension industry lobbyists have been trying to persuade Senate leaders to change and clarify the legislative provisions that would negatively impact pension fund swaps; the FDIC's Sheila Bair opposes segregation of swaps units.

(May 3, 2010) — Legislation pending in the Senate could put a stop to the use of swaps and other derivatives by defined benefit and defined contribution plans.

Banning pension use of swaps would have a monumental impact on the volume and value of the transactions. According to Jason Hammersla at The American Benefits Council, companies are pushing for the deletion of a provision that would require swap dealers to assume a fiduciary obligation when entering, or offering to enter, into a swap with a pension plan.

Fiduciary rules prohibit a fiduciary from representing the opposite party in a transaction. Thus, this provision would effectively prohibit swap dealers from entering into swaps with plans, since the swap dealer would be representing both itself and the plan. Plans use swaps to offer stable value funds to 401(k) plans across the country, while defined benefit plans use swaps to control asset volatility. Without this control, companies would have to increase their reserves to address future funding obligations, taking money away from job retention and economic recovery. Under the bill, plans would lose these valuable tools, which would create significant problems for plans going forward, Hammersla said to ai5000.

Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair is also opposing legislation that could cut off privileges to banks that fail to segregate swaps trading units.

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“If all derivatives market-making activities were moved outside of bank holding companies, most of the activity would no doubt continue, but in less-regulated and more highly leveraged venues,” Bair wrote in an April 30 letter to Senate Banking Chairman Christopher Dodd and Agriculture Committee Chairman Blanche Lincoln, according to Bloomberg. “Even pushing the activity into a bank holding company affiliate would reduce the amount and quality of capital required to be held against this activity.”

Bair, who has frequently been critical of big banks, claimed the proposals pushed by Lincoln would lead to a “weakened, not strengthened, protection of the insured bank,” as some of the riskiest parts of banks’ business would be moved out of federal oversight.

Bair is the third US regulator to voice concern about proposals to thwart participation by banks like Goldman Sachs Group Inc. and JPMorgan Chase & Co., which make billions of dollars each year from their derivatives operations, in swaps. Some lawmakers, according to Bloomberg, assert participation by banks in swaps contributed to the fall of the financial system and they have been trying to shed light on the over-the-counter derivatives market to avoid a repeat of the near collapse of American International Group (AIG), which had a large swaps portfolio.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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