Mexico's Pension System Ups Opportunities for Asset Managers

(June 12, 2011) — Mexico’s pension system, known as Afores, is permitting schemes to use external managers, allowing funds to achieve better returns by utilizing fund managers’ expertise, the Financial Times reports.

“It is a positive development for the system, because it will allow workers’ funds to be invested in a better way and be in a better position to take advantage of the current limitations to investments,” Isaac Volin, country head for Mexico at BlackRock, told the newspaper.

Consar, Mexico’s pensions regulator, issued a directive in March 2011 allowing Afores, which have about $120 billion of assets under management or 10% of Mexico’s gross domestic product, to employ external managers to oversee a percentage of their assets.

When outsourcing pension fund assets, fund managers and their teams must have a minimum of 10 years of experience and a minimum five years managing the specific asset classes of the mandates, according to the FT. Additionally, managers must have at least $50 billion in assets under management, the support of a custodian bank and independent valuators, and be supervised by the authorities of the countries in which Afores are allowed to invest.

While Afores are currently allowed to employ Mexican and international mandates, observers anticipate that they will likely be used increasingly in the global market and to increase the limit for equity investments.