Peru Pensions to Permit More Investment Abroad

(April 28, 2011) — A Peruvian congressional committee will permit privately-run pension funds to invest more heavily abroad to diversify their risk.

While the current limit of funds’ assets in overseas investments stands at 30%, the measure seeks to raise the limit gradually to 50%, which could be approved as soon as Thursday, a lawmaker told Reuters. Furthermore, the proposal aims to reduce pressure on the Peruvian economy caused by speculative capital inflows. “The strength of demand for instruments in the local market and scarcity of investment alternatives leads to the concentration of investments in a few issuers,” Lorena Masias, the banking regulator’s assistant superintendent of pension funds, told the committee, according to Bloomberg. “That’s why it’s a good idea to raise the limit.”

The funds — known as AFPs — buy government bonds and invest in housing construction and infrastructure, and are the most active investors in Peru’s stock market. Last year, the Peruvian central bank upped the limit on pension investments abroad to 30% form 22%.

In a similar move to attract a greater level of investment abroad among institutional investors, the Australian government revealed earlier this week that it may consider tax breaks on sovereign wealth funds that have passive investments in Australian assets. As sovereign wealth funds rise in financial clout — with an estimated worth of $4.2 trillion, or almost double that of private-equity assets — the tax breaks reflect a sense of competition that is brewing among countries to obtain a greater level of foreign investment. Already, France, Canada, Japan, and Belgium provide tax exemptions for certain foreign investments. The Japanese government, for example, has provided a tax exemption for interest accrued on some assets held by sovereign wealth funds in order to attract more investment from abroad in the wake of credit turmoil.