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PENSION WITHDRAWALS: ANDEAN AFPS STILL HOLD LION’S SHARE OF MOST MANAGERS’ LATIN AUMS – FUNDS PRO

Despite the successive withdrawals from pension funds in Chile and Peru to cope with the economic and social crisis, AFPs are still very attractive clients for foreign managers operating in the region.
Various distributors of foreign funds for institutional investors confirmed to Fund Pro Latin America that managers are concerned about reduction of their placements in Chile and Peru, however they maintain their strategic view of the institutional business in these two countries, as well as in Colombia and Mexico.
Matías Eguiguren, a partner at Picton, recognized that the withdrawals have hammered pension fund positions in both countries, with reductions mainly affecting ETFs and international mutual funds.
“Pension funds in Chile suffered an outflow of assets of approximately USD 35 billion with the first and second withdrawals and we estimate another USD 15 billion will leave with the third withdrawal, totaling USD 50 billion and reducing total AUM of Chilean pension funds to around
USD 200 billion. In the case of Peru we have seen outflows of USD 12 billion to date and we estimate another USD 10 billion once the law currently before Congress is passed, bringing total AUM to around USD 35 billion.”
On liquidation of foreign positions, the executive estimated that in the last 12 months more than USD 7 billion have left Chile, of which USD 4 billion were in ETFs and USD 3 billion in mutual funds.
In the case of Peru USD 3 billion have left, of which USD 2 billion were in ETFs and USD 1 billion in mutual funds.
“The new withdrawals will lead to even more sales of ETFs and mutual funds of about USD 5 billion from Chile and USD 3 billion from Peru. Even so, Latin America, and especially Chile, Colombia and Peru, continue to be very attractive markets for distributors of international ETFs and mutual funds, with current investments totaling over USD 135 billion,” Eguiguren said.
Another local distributor commented that the successive pension withdrawals are affecting the work of pension fund portfolios, since portfolio managers can no longer plan for the long term.
“So we will very likely see a greater preference for funds that provide liquidity and are functional to
the needs of AFPs. This is the case of ETFs and some traditional funds, understanding that managers do not like their clients abusing the sale of positions that are supposed to be long term,” the distributor said.
This same trend towards short-term investment, which has been going on for several months now, has had a strong impact on investment programs in alternative assets. “It is unfortunate, and everything is on hold; in the current situation AFPs cannot make investment decisions in alternatives, even though that is the asset class that can really give them a long-term return differentiation.”
Another local source pointed out that, due to the amounts they manage or used to manage, AFPs have strong bargaining power for obtaining very good fees from international managers, but as volumes fall this negotiating position weakens. “In this respect, it is possible that, in the medium term, if foreign AUMs fall a lot, AFPs will have to concentrate their investments in fewer managers in order to maintain the size of their tickets,” he said.