Official: AFP investment in capitals market too high

The investments of Peruvian pension fund administrators, AFPs in the local capital market is artificially high because limits on investment abroad are too strict, local press reported AFP association director Jaime Cáceres as saying. AFPs can currently invest 10.5% of their investments abroad, but Cáceres argued that the limit should be raised to 20% to enable pension funds to diversify their investments to lower risk levels. "The solution is not to raise the limit of investment abroad," Fitch analyst Ernesto Bazán told BNamericas, "but rather to increase local investment opportunities that are attractive to AFPs." The government can play a key role in diversifying AFP's portfolios by privatizing companies, especially in the energy sector, so more long-term bonds are on the market. Government concessions for infrastructure projects such as road construction would also be attractive alternatives for pension fund investment, Bazán added. The AFP association director argued, however, that pension funds would profit greatly from stable investment opportunities abroad and added that the IMF also supports an increase in the level of investment abroad. "There needs to be more bond issuances in the private sector because as of now, AFPs are only interested in stable long-term fixed rate investments, and the government and central bank can play key roles in this area," Bazán concluded.