Home > News > Research > Latin America Lags in Establishing Sovereign Funds, Report Finds
Research

Latin America Lags in Establishing Sovereign Funds, Report Finds

According to the International Forum of Sovereign Wealth Funds, countries in the region should look to ‘other emerging regions’ for guidance.

By Michael Katz




A recent report from the International Forum of Sovereign Wealth Funds investigated why Latin America lags behind other emerging markets in developing sovereign wealth funds beyond stabilization funds.

“It is striking that, in Latin America today, there are 12 sovereign wealth funds, nearly all of which are traditional stabilization funds,” the report stated.

Unlike most sovereign wealth funds, stabilization funds can be drawn on by governments to reduce the impact of volatile revenue on the economy. Because the assets in the funds might be needed on short notice, stabilization funds typically invest in liquid, low-risk assets and are usually managed by a county’s central bank or finance ministry.

“While most governments in the region have implemented stabilization mechanisms to mitigate the adverse effects of both fiscal and currency crises,” the report stated, “these have not facilitated the accumulation of sufficient excess reserves to serve as a store of savings for future generations.”

Want the latest institutional investment industry
news and insights? Sign up for CIO newsletters.

The report suggested that Latin American countries should learn from “other emerging regions,” including leading African countries, whose sovereign investment vehicles are “much more heterogeneous, as governments have innovated on the traditional sovereign wealth fund models to help drive development in their home economies.” According to data from the IFSWF, of the 18 sovereign wealth funds in Africa, 11 have some form of strategic or domestic development mandate.

“The African experience points to the potential for strategic investment funds to pioneer innovations in development finance that can promote improved financial stability,” the report stated.

However, the report noted that unlike Africa, Latin America has yet to show the “requisite economic conditions, political will, or skills to establish strategic investment funds.”

The report stated that Latin America could also look to oil-rich countries, such as Norway and Saudi Arabia, that have used their natural resources to establish sovereign wealth funds. It described Latin America as “rich in natural resources,” including oil and gas; metals; and minerals used for electric vehicle batteries.

“Countries like Venezuela, Colombia, Brazil, and Mexico collectively account for nearly one-fifth of global oil reserves,” according to the report. “Bolivia, Argentina, and Chile have over half of the world’s lithium, and Chile has the world’s largest deposits of copper.”

The report suggested funds buoyed by resource revenues could “play a complementary, if not more effective … than development banks[, role] in mobilizing private international capital into the region.”


Related Stories:

Sovereign Wealth Fund Group Elects New Leaders

Rising Nationalism, Inflation Create ‘Unique Risks’ for Sovereign Wealth Funds

Sovereign Wealth Funds Adopt More Tools to Monitor Climate Impact

Tags: , , , ,

Home > News > Pensions > Most Pension Funds Intend to Increase Spending on Scenario, Risk Modeling Tools, per Survey
Pensions

Most Pension Funds Intend to Increase Spending on Scenario, Risk Modeling Tools, per Survey

Pension executives reported confidence in their plans’ abilities to manage these processes, but there is room for improvement, according to Ortec Finance.
By Matt Toledo



Approximately two-thirds (66%) of U.S. pension funds anticipate increasing spending on scenario and risk modeling, asset-liability management and stress testing over the next two years, according to a survey from Ortec Finance B.V.  

Of those surveyed, 30% of pension funds reported that their teams are very effective at scenario modeling and stress testing, Ortec found. Additionally, 18% reported they plan to increase their budget and focus dramatically on these areas, 26% said their budgets and focus will stay the same, and 8% said their budgets will decrease. Of those surveyed, 68% reported being quite effective at these processes, and just 2% admitted to not being effective. 

“Our clients are confident that using scenario analysis as a part of their workflow allows them to uncover risks, find new opportunities, and navigate uncertainty,” said Richard Boyce, Ortec Finance’s managing director for North America, in a statement. “With increased market and geopolitical uncertainty, we believe scenario modeling is one of the best methods for supporting pension funds looking to navigate these unknown waters.” 

Additionally, the survey found that 42% of pension funds outsource their asset-liability management studies. Approximately 50% of those surveyed said they outsource some aspects of their ALM studies but do some work in house. Only 6% of pension plans said they do not outsource ALM studies, with 2% not expressing a view.  

Never miss a story — sign up for CIO newsletters to stay up-to-date on the latest institutional investment industry news.

Approximately 12% of those surveyed said their internal ALM monitoring capabilities are excellent, 56% rated theirs as good, while 32% rated their capabilities were average.  

“It’s promising to see that the U.S. pension plan managers surveyed plan to increase their budget set aside for stress-testing and scenario modeling, because we see those who do benefit, as scenario modeling can leave managers better prepared to make decisions in light of increased uncertainty,” Boyce said in a statement.  

Ortec Finance and research firm Pureprofile surveyed 50 executives from public, corporate and multiemployer pension funds representing $670.4 billion in assets under management. The firms conducted the survey in November.  

Related Stories: 

Most Institutional Investors Underweight on Fixed Income 

Appetite for Risk Among Family Offices Expected to Increase 

M&A, VC, AI Activity Expected to Increase in Next 5 Years, per Coller Capital Survey 

Tags: , , ,

«