MEXICAN UPDATE – Foreign Asset Management Companies Now Eligible to Manage Mexican Pension Funds
- Mexico’s Retirement System National Commission recently enacted new legislation designed to facilitate the outsourcing of investment management of Mexican pension funds.
- One of the main goals of the new legislation is to create a competitive market that is open to international asset managers.
- The new legislation permits SIEFORES and their authorized Agents to invest in Mutual Funds, FIBRAS (similar to REITS), Equity Development Certificates (CKD’s) and Commodities.
On July 27, 2011, Mexico’s Retirement System National Commission (CONSAR) enacted the new General Provisions Establishing the Investment Regime for Retirement Fund Investment Companies (SIEFORES). Such new provisions result in important changes to the legal and economic outlook of asset management in Mexico, related specifically to pension funds.
One of the main objectives of the new General Provisions concerns the possibility of establishing outsourced investment portfolios by SIEFORES, to be carried out by asset managers through the execution of investment and management mandates (as defined by the corresponding law) between the Pension Fund Management Companies (AFORES) on behalf of the SIEFORES it operates, and eligible asset managers, as described below.
Asset managers are now eligible to manage investment portfolios of the AFORES, when, among other aspects, they comply with the criteria of CONSAR’s Risks Analysis Committee (CAR), and the SIEFORES´ applicable prospectus and investment regime (IR). In general terms, the criteria consists in asset managers not being part of the same financial group as the contracting AFORE, having at least 10 years of experience as asset managers focused on mutual funds, ETF’s or investment mandates, proving as well that the assets currently managed are of at least US$ 50 billion. Accordingly, this offers the opportunity for asset managers that comply with the applicable criteria to participate in this market.
Another important modification that will certainly produce benefits for all the parties involved (AFORE, SIEFORE and Agent) concerns the possibility for AFORES to invest in Mutual Funds which can also be done through the mandates defined above.
The outsourcing of investment portfolios of SIEFORES may be carried out by the execution of management mandates between an AFORE, on behalf of the SIEFORES it operates, and eligible asset managers. The term of the agreement will be defined by both parties; such term may be for an indefinite period of time (open agreement). The draft of such agreement must be approved by the Banking and Securities Commission (CNBV). In the event the term has been predetermined, early termination events shall be included. Among others, serious breach to the terms agreed upon for the execution of the mandate, as may be violations to the IR, breach of confidential information, transparency criteria, auditability and/or integrity, as well as an inadequate management control shall be considered as early termination events.
On the other hand, SIEFORES may invest in assets contemplated in their investment regimes, including the opportunity to invest through Equity Development Certificates (CKDs) in private equity projects. In general terms these types of projects facilitate investment in infrastructure projects such as highways, railways and industrial real-estate, among others. Seventeen CKDs have been successfully placed in the Mexican stock market since being introduced by local legislation in 2009. Similarly, SIEFORES may invest in FIBRAS (similar to REITS), mutual funds, as mentioned above, and certain derivatives.
As such, one of the main goals of the amendment to the Mexican legislation in this matter, clearly emphasizes the need to open a competitive market for international enterprises with experience abroad and extensive resources, both human and financial. Accordingly, attractive opportunities in this area for asset management companies worldwide are now available.