Mexico's pension funds, known as Administradoras de Fondos para el Retiro (Afores), could invest in publicly-traded companies through structured products specialising in infrastructure projects, signalled Oscar Franco, director of pensions association Amafore, following a presidential decree to that effect.
Whereas current regulation allows Afores to invest in indices, sub indices and trackers, but not directly in single shares, the new approach will allow them to invest in publicly-traded companies via the structured products they issue to finance infrastructure projects, creating access to stocks not included in the IPC or recently added to the Mexican Stock Exchange. (The Mexican index IPC tracks 35 high-cap publicly-traded companies listed on the Mexican bourse.)
Franco said that since structured instruments have better return potential than fixed income, the presidential proposal could improve Afores' returns, and thereby maximise retirees' savings.
In response to recent publications suggesting the products are too risky for pension investments, Franco countered that they are wrapped in a trust that prevents companies from avoiding their commitments, and that the structure - a typical zero coupon bond structure - protects principal, with upside linked to the success of the project.
The first local infrastructure project financed with structured products was the Rancho de Santa Genoveva project, whose goal is to develop and maintain a 3,500-hectare forest in Campeche with high quality wood. In the long term, the wood will be harvested and sold for profit. The issuing company was Agropecuaria Santa Genoveva, SAPI de CV, and the trustee was BBVA Bancomer. The 18-year product raised MXN1.65bn ($127m).