Investment losses drag down pension AUM growth in Mexico

Mexico's pension regulator (Consar) reported that at the end of 2018, the total assets held in the retirement system (SAR) stood at 3.33tn pesos (US$175bn), a modest 0.2% increase from year-end 2017, representing 14.3% of GDP.

The report indicated a nominal yield on investments by pension fund managers (Afores) at 0.8%; however, in real terms the actual yield came to a 3.9% loss.

The loss came in a year marked by a series of global market shocks as well as a deep hit from the decision to cancel Mexico City's partly built international airport in late October, contributing to a 132bn-peso loss for Afores in that month.

The average annual yield on investments in the system from the start of the Afore system in 1997 until 2018 was a nominal 10.93%, or 5.03% in real terms.

The latest yield data stands in contrast to the data for 2017, which was a record year with an average yield of 9.85% and an average 1997-2017 yield of 5.48%.

At the end of last year there were 62.9mn individual retirement accounts in SAR, a 4.8% year-on-year increase.

Despite the difficult year, Consar noted that voluntary contributions to Afores grew 13.6% last year in real terms to 68.6bn pesos at the end of 2018.

Afore investments in 2018

Afores' financing for Mexican companies of different sizes and sectors of economic activity amounted to 1.17tn pesos at the end of 2018.

Even though changes to regulations at the start of the year opened the door to a wider range of investment vehicles, investments in foreign assets fell 18.9% to 358bn pesos.

The following table uses Consar data to demonstrate the evolution of investment portfolios at Mexico's Afores.

Afore investments in green bonds, however, increased 67.0% to 7.04bn pesos.

Their investments in Mexico's 10-year bonds increased by 67.9bn pesos to 450bn pesos, equivalent to 15.4% of all 10-year bonds on the market. Consar added that Afores held 585bn pesos in local private sector long-term debt.

The Afores' investments in equities shrank 11.6% last year to 666bn pesos.

A Citibanamex analysis on the Afores' performance in 2018, cited Citi strategist for Latin America, Julio Zamora, in stressing that while Afores represent about 15% of Mexico's GDP, "They only have a small portion invested in local equities."

Afore's assets under management invested in the Mexican stock exchange amounted to 201bn pesos, representing about 2.7% of the total market value.

Zamora attributed this to "the low number of shares held by the investing public, which reduces liquidity and represents a significant obstacle for the Afores to invest in local shares."

Pictured: Aerial view of the construction site of Mexico City's cancelled airport, in Texcoco, Mexico state, on November 6, 2018.