How Mexican Pension Funds Could Boost Infrastructure Development

Mexican pension fund managers (Afores) have so far invested 460 billion pesos ($23 billion) in infrastructure.

The pension regulator Consar wants to increase this amount to stimulate development and stimulate small projects.

BNamericas spoke with Consar Director Iván Pliego Moreno about the relationship between the infrastructure sector and pension fund managers, how investments could be increased, and more.

Numerical: How do the infrastructure sector and pension fund managers interact?

Pliego: It is a direct relationship. The Afores manage assets of more than 5 tn of pesos, which are part of the savings of the workers, but also of the returns that more than two and a half decades during which this system has operated have been produced.

The purpose of the administrators is to [assuring] workers have sufficient resources in retirement. How do you get these resources? On the one hand, there are the contributions of workers, employers and government, but the substantial part that will produce sufficient resources in the long term will come from revenues. In other words, they will come from the investments made by each director according to his own investment strategy.

Numerical: What options do administrators have for investing these resources?

Pliego: In a number of regimes ranging from public debt (in which half of the resources are invested) to corporate debt, variable income securities, fixed income securities and other instruments such as Fibras ( infrastructure and real estate trusts), as well as other derivative instruments and structured tools.

Consar’s responsibility is to define the plan and its limits so that [Afores] don’t take too many risks with worker resources. In 2019, a system was put in place that changed the five Siefores (investment funds) that existed into 10 generational Siefores. These are intended to favor the resources of workers aged 20 to 30, who will not need their money for 20, 30 or 40 years, so that they can take more risks and invest in projects that generate more returns. On the other hand, the resources of workers close to retirement run much more moderate risks, even if their returns are logically lower.

Numerical: Are infrastructure projects attractive for the managers of these funds?

Pliego: Of course they always have been, but today we have to make small projects more attractive. So far, of the more than 5 billion pesos in the system, just over 460 billion pesos have been invested in infrastructure, and we hope not only that this amount will be maintained, but that it will increase.

Numerical: What are the characteristics of an attractive project?

Pliego: Basically, that it results in good returns and incurs the lowest costs. As I mentioned, one of the challenges we are currently facing is that there are many small and medium enterprise projects that could be very helpful in triggering development, generating jobs and contributing to local and national development. , but they are not attractive for Afores.

They are small and may require financing of 100mn pesos or 200mn pesos, which for an Afore is very little capital. In short, investing less than 500mn of pesos is costly for an Afore in terms of managing its investments, so they must become attractive. How? Well, make them bigger. We try to achieve this by consolidating several small projects with limited amounts into one large amount, which combines different local investment projects.

Numerical: How to classify projects?

Pliego: With a good structuring or to put it colloquially packaging, that is to say grouping together a series of small and medium-sized business projects that may require up to 200 minutes of pesos, and promote local development: agriculture, road infrastructure, drainage or more water and sanitation services.

There are many proposals in the ffunding mof the ministry (SHCP) investment portfolio that we are analyzing for the possibility of integrating them into these arrangements and so that they can be financed within the framework of this scheme of global amounts. Strategies should also be developed to increase the number of companies listed on our country’s stock exchanges, since it is easier for Afores to invest in projects if they are listed. Over the past 15 years, that number has dropped by almost 7%.

Numerical: How to get more listed companies?

Pliego: Several issues need to be resolved. One of them is cultural: Mexican investors still do not understand the relevance of ceasing to be a family business and becoming a publicly traded company.

This would commit them to being more transparent and solid in the administration and development of their responsibility as entrepreneurs.

Numerical: In which projects were investments concentrated last year?

Pliego: In Fibras, which is an area that has been attractive due to the large quantities needed. In the infrastructure sector, the projects of the productive public companies CFE and Pemex attracted the most investment. In second place is the development bank, in third place is housing, in fourth place is the banking sector and in fifth place is the agro-food sector. These are the main sectors that benefited from Afore’s investments last year.

Numerical: Does the infrastructure sector lack private investment?

Pliego: Sure. It can be said that there is liquidity, indeed, the limits of the banking sector are almost or more than the double of what the regulations require.

What we are proposing is that banks try to improve credit conditions for small and medium enterprises because half of the assets of the entire financial sector are managed by the banking sector, in second place the Afores, which represent 20% of our country’s GDP.

Yes, this liquidity exists, but what is needed is to make it work.