Fees, investment strategies and returns in Mexico private

AIOS-OECD
Tour D’Horizon
México D.F., June, 2011
Comisión Nacional del Sistema de Ahorro para el Retiro
Camino a Santa Teresa # 1040 8o. piso, Col. Jardines en la Montaña
Delegación Tlalpan, C.P. 14220, México D.F.
Tel. +52 (55) 3000-2608 y 3000-2548 www. consar.gob.mx
Content
1. Fees and mergers
2. Returns and investments
2
In 2007 the law of the pension systems was reformed and only
fees on AUM are allowed. During the period 2007-2011 these
fees have been reduced by 63%.
Converted fees by eliminating
the fee on flows
AFORE
Afirme Bajío
Azteca
Banamex
Bancomer
Banorte Generali
Coppel
HSBC
Inbursa
ING
Invercap
Metlife
Principal
Profuturo GNP
XXI
Simple Average*
June 15,
2007
3.29
1.96
1.84
1.47
1.71
5.14
1.77
1.18
1.82
2.48
2.26
2.11
1.96
1.90
4.06
Decrease with respect to June 07
Entry into
force of the
2007 Reform
Entry into
force of the
2009 Reform
March 16
2008
February 27,
2009
Current
2010
2011
1.70
1.96
1.84
1.47
1.71
3.30
1.77
1.18
1.74
2.48
2.26
2.11
1.96
1.45
1.96
1.70
1.96
1.84
1.47
1.71
3.30
1.77
1.18
1.74
1.93
1.89
1.94
1.92
1.45
1.81
1.51
1.96
1.58
1.45
1.58
1.81
1.61
1.18
1.61
1.73
1.74
1.79
1.70
1.42
1.62
1.51
1.67
1.45
1.40
1.48
1.70
1.52
1.17
1.48
1.72
1.69
1.55
1.53
1.40
1.52
6
decrease
-51.7%
77
Lows
decrease
-55.3%
Authorized
12
12
decrease
Lows
-60.1%
13
13
decrease
Lows
-62.6%
This trend will continue since pension funds have to present to the board of
CONSAR on a yearly basis their proposals of fees for the following year.
* Simple Average considers all AFOREs operating on that date
3
Difference
Max/Min:
0.55%
2011 fees
Average: 1.52%
1.0%
1.5%
1.5%
Metlife, 1.69%
Coppel, 1.70%
Invercap, 1.72%
Azteca, 1.67%
Principal, 1.55%
1.0%
Afirme Bajío,1.51%
HSBC, 1.52%
Profuturo GNP, 1.53%
Average: 1.62%
Principal, 1.79%
Coppel, 1.81%
Azteca, 1.96%
Invercap, 1.73%
Metlife, 1.74%
Profuturo GNP, 1.70%
Banamex, 1.58%
HSBC, 1.61%
ING, 1.61%
XXI, 1.42%
Bancomer, 1.45%
Afirme Bajío, 1.51%
Banorte Generali, 1.58%
Inbursa, 1.18%
2010 Fees
XXI, 1.40%
Bancomer, 1.40%
Banamex, 1.45%
ING, 1.48%
Banorte Generali, 1.48%
Difference
Max/Min:
0.78%
Inbursa, 1.17%
The spread between the highest and lowest fee was reduced
last year to 0.55%. The continuous growth of assets and the
economies of scale in part explain this dynamics.
2010 Average, 1.62%
2.0%
2.0%
2.5%
2.5%
3.0%
2011 Average, 1.52%
3.0%
4
There are several reasons that has led to a significant fee
reduction, among which outstand the following:
1
Maturing system
2
Efficient collection
and distribution
3
Fees once were
the unique driver of
competition
4
Net returns are
the main driver of
competition
The startup cost of the system had to be covered with fees,
which pushed these charges upwards (the system started in
1997.) As the system matures, variable costs and
competition have become the most relevant variables.
The process of collection and distribution of resources is
centralized in a regulated entity, called PROCESAR, which
exploits the economies of scale in these activities. This
efficiency is in turn (partially) transferred to workers with an
individual account.
As the services provided to workers were refined over time,
but with a investment regime still narrowed, fees became
the main driver of competition among Pension Funds, even
statutorily. Before the reform in 2007, it was possible for
workers to move from one fund to another as long the
destination was cheaper.
The reform in 2007 changed the driver of switches of
workers from fees to net returns, that is, returns net of fees.
This driver incentivizes pension funds to be cheap and to
be better investment and risk manager.
5
There are several reasons that has led to a significant fee
reduction…
5
Rapid growth of
AUM
6
High profits in the
system
7
Deregulation of
operational
activities
8
Approval of fees
by the Board
of CONSAR
There are important economies of scale in the activities
related to investment and risk management of portfolios.
This along with the rapid growth of AUM in the system and
the fee structure have allowed the fee level to drop.
The ROE and profits of the system indicate that fees have
had room to drop, even in comparison with other sectors,
without compromising the viability of the system.
CONSAR has deregulated significantly the activities related
to record keeping, collection and payment of resources and
switching among pension funds. This is in accordance with
RBS. The focus in these topics now is on outcomes rather
than on the processes.
Pension funds on yearly basis have to submit their
proposal of fees to be charged the following year to the
Board of CONSAR.
6
Content
1. Fees and mergers
2. Returns and investments
7
There are over 40 million registered accounts in the system.
ACCOUNTS
MANAGED
BY AFORES
Accounts
Managed
by Afores
29.4
30
31.4
35.3
38.6
40.9
39.9 42.02
26.5
25
20
15
13.8
15.6
17.8
11.2
10
5
Aug-10
Apr- 11
Dec-09
Dec-06
Dec-05
Dec-04
Dec-03
Dec-02
Dec-01
Dec-00
Dec-99
Dec-98
0
Dec-97
Million Accounts
35
33.3
37.4
Dec-08
40
39.3
Dec-07
45
The managed accounts have grown from 11 million in 1997
to almost 42 million in April 2011(282%).
8
Pension funds’ assets under management amount to more than US$124
billion as of April 2011. These assets grow rapidly, and provide funding,
through different mechanisms, mainly to Mexico’s productive sector.
Pension Funds’ assets under management
US$ 124.01
Pension Funds’ assets under management
represent 21.42% of the domestic savings and
contribute to the growth of financial savings.
US$ 88.1
US$ 76.2
US$ 67.8
US$ 67.0
US$ 55.2
April 2011
Dec-2010
Dec-2009
Dec-2008
Dec-2007
Dec-2006
Dec-2005
Dec-2004
Dec-2003
Dec-2002
US$ 42.9
US$ 35.8
US$ 30.9
Dec-2001
Dec-2000
Dec-1999
Dec-1998
US$ 27 .0
US$ 17.0
US$ 11.4
US$ 5.7
Dec-1997
US Billion
US$ 112.1
SOURCE: CONSAR
Pension Funds’ assets under management represent 10.9% of the GDP
7
Assets managed by SIEFORES represent 13.4% of assets in the
Mexican Financial System, just behind Banks.
MEXICAN FINANCIAL SYSTEM (Market Share)
4.1
3.5 1.4
Banks
Pension Funds (SIEFORES)
6.2
Development Banks
11.4
Mutual Funds
50.4
9.6
Insurance Companies
Brokerage Houses
13.4
Non-Bank Financial Companies
Others
In the last ten years the Assets Under Management (AUM) by SIEFORES have
grown on average 21.93% per year.
CONSAR – FINANCIAL VICEPRESIDENCY
Sources: CNBV, CNSF and CONSAR
10
The total amount allocated to Social Prevision amounts to US
$1,363.12 million*.
Basic
Pension
Fund 1
Afore
7.88%
8.75%
8.42%
5.38%
9.60%
11.44%
40.97%
6.87%
12.58%
5.83%
3.26%
6.94%
8.80%
5.59%
6.78%
10.17%
20.87%
24.66%
23.34%
20.65%
30.69%
35.24%
39.86%
18.67%
25.23%
20.52%
13.39%
18.33%
24.18%
15.47%
13.48%
24.46%
Basic
Pension
Fund 3
Basic
Pension
Fund 4
30.84%
33.30%
34.62%
35.84%
34.18%
28.43%
7.99%
26.76%
29.82%
31.34%
24.18%
29.55%
31.00%
25.99%
19.44%
30.36%
Additional
Pension
Fund
Basic
Pension
Fund 5
32.26%
25.35%
29.57%
34.63%
21.47%
18.56%
8.25%
34.84%
28.19%
33.42%
37.75%
36.61%
27.51%
36.84%
23.90%
27.99%
7.94%
3.53%
3.84%
3.31%
4.06%
6.33%
2.93%
10.88%
4.18%
8.89%
21.41%
8.57%
8.22%
16.12%
36.40%
6.15%
0.21%
4.41%
0.22%
0.19%
0.00%
0.00%
0.00%
1.98%
0.00%
0.00%
0.00%
0.00%
0.28%
0.00%
0.00%
0.87%
TOTAL
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
US Million
Banamex
Bancomer
ING
Profuturo GNP
Inbursa
XXI
PensionISSSTE
Banorte Generali
Principal
Invercap
Coppel
HSBC
MetLife
Azteca
Afirme Bajío
System
Basic
Pension
Fund 2
*As of April 2011
Basic
Pension
Fund 1
Basic
Pension
Fund 2
Basic
Pension
Fund 3
Basic
Pension
Fund 4
Basic
Pension
Fund 5
Additional
Pension
Fund
11
In recent years the portfolios of Pension Funds have reduced
their concentration in government securities. Although the
portfolios are still highly concentrated in these securities.
Government Securities holdings in the
Pension Funds’ Portfolio
100
95
Percentage
90
85
80
April
58.69%
75
70
65
60
Apr- 11
Nov- 10
Jun- 10
Jan- 10
Aug- 09
Mar- 09
Oct- 08
May- 08
Dec- 07
Jul- 07
Feb- 07
Sep- 06
Apr- 06
Nov- 05
Jun- 05
Jan- 05
Aug- 04
Mar- 04
Oct- 03
May- 03
Dec- 02
Jul- 02
Feb- 02
Sep- 01
Apr- 01
Nov- 00
Jun- 00
50
Jan- 00
55
Basics Pension Funds
SOURCE: CONSAR – FINANCIAL VICEPRESIDENCY
12
Within the investment in government securities, Pension Funds stand
out as the main investor in the government long-term bonds.
Yield (%)
US Billion
Government Bonds yield curve
Total Issuance
SOURCE: CONSAR and BANXICO
Afores share
Yield Curve
Data as of April 2011.
11
4,000
Ene-00
Jan
- 00
Abr-00
Apr
- 00
Jul-00
Jul
- 00
Oct-00
Oct
- 00
Ene-01
Jan
- 01
Abr-01
Apr
- 01
Jul-01
Jul
- 01
Nov-01
Nov
- 01
Feb-02
Feb
- 02
May-02
May
- 02
Ago-02
Aug
- 02
Nov-02
Nov
- 02
Feb-03
Feb
- 03
Jun-03
Jun
- 03
Sep-03
Sep
- 03
Dic-03
Dec
- 03
Mar-04
Mar
- 04
Jun-04
Jun
- 04
Sep-04
Sep
- 04
Dic-04
Dec
- 04
Abr-05
Apr
- 05
Jul-05
Jul
- 05
Oct-05
Oct
- 05
Ene-06
Jan
- 06
Abr-06
Apr
- 06
Jul-06
Jul
- 06
Nov-06
Nov
- 06
Feb-07
Feb
- 07
May-07
May
- 07
Ago-07
Aug
- 07
Nov-07
Nov
- 07
Feb-08
Feb
- 08
May-08
May
- 08
Sep-08
Sep
- 08
Dic-08
Dec
- 08
Mar-09
Mar
- 09
Jun-09
Jun
- 09
Sep-09
Sep
- 09
Dic-09
Dec
- 09
Abr-10
Apr
- 10
Jul-10
Jul
- 10
Oct-10
Oct
- 10
Ene-11
Jan
- 11
Abr-11
Apr
- 11
WAM
Over time retirement savings have increased significantly the financing of
longer-term investments (WAM), consistent with its object, and outstanding
in comparison with the government supply of financial assets.
Weighted Average Maturity Evolution (WAM)
5,000
Basic Pension Funds - Days
4,500
4,181 days
Federal Government Debt
Basic Pension Funds
3,500
3,000
2,657 days
2,500
2,000
1,500
1,000
500
Data as of April 2011. Federal Government Public Debt information as of the last date published by Banxico.
SOURCE: CONSAR – FINANCIAL VICEPRESIDENCY
14
The investment regime’s opening has resulted in better diversified
portfolios that manage resources of US$124 billion.
(Pension Funds’ Portfolio )
Floating-Rate Others
3.87%
Bonds
2.62%
Government Debt
5.06%
Local Equity
7.99%
Foreign Equity
9.99%
Structured
Securities
2.65%
Domestic Private
Debt
17.65%
Real Rate Bonds
25.66%
Foreign Debt
3.03%
Fixed Rate Bonds
21.48%
Government securities
(58.7%)
79.4%
Fixed income
Private
securities
Structured
Securities
Equity
20.7%
2.7%
18%
Private securities
SOURCE: CONSAR – FINANCIAL VICEPRESIDENCY
• The historical performance of
the
Retirement
Savings
System at the end of April
2011 is 13.27% in nominal
terms .
• The average maturity of the
Pension Funds’ portfolio is
11.5 years.
• Pension Funds' share in the
private sector debt market is
close to 28.62% of the total
outstanding.
Equity
Data as of April 2011
15
There are three main vehicles within which pension funds can
finance the private sector: Debt, Equity and Structured Instruments.
FORMS OF FINANCING
Large Companies
Debt
$22,986
Pension Funds
md
Equity
Medium Companies
$10,401
md
CKDs1/ + FIBRAs2/
(Structured)
$3,454
Small Companies
md
Pension funds have funded at US$36,840 million to
Mexican companies
SOURCE: CONSAR-VICEPRESIDENCIA FINANCIERA
1/ Private Equity Financing.
CKDs: Capital Development Certificates
2/ Mexican REITS
Data as of April 2011
16
With regard to the private sector, pension funds finance the 28.6% of
the total outstanding long term debt, channeling resources to large
numbers of productive sectors.
4,248.1
Paper
Automovile
Financial Services
Cement
Transportation
Hotels
Malls
Steel
Structured Debt
4.4
Food
38.2
Consumption
57.6
Industrial Groups
174.9
Other
330.9
States
28%
Infraesructure
34%
Beverages
*
Banks
87%
346.8
369.9
463.3
609.7
669.8
733.5
808.1
811.3
865.5
867.0
946.1
FOVISSSTE
1,142
34%
*
Development Banks
% of total
outstanding
held by
Pension Funds 18%
Telecom
77 6%
2,287 43%
1,142 41%
742 34%
Housing
$SOFOL
INFONAVIT
FOVISSSTE
BORHIS
1
Public Entities
BORHIS
742
$1,000
CFE
2,208
$2,000
3,449.3
1,417.5
$3,000
2,074.8
INFONAVIT
2,287
$4,000
PEMEX
2,697
US Million
$5,000
28.62%
Besides this amount, Siefores
have financed US$10.4 B in
domestic companies through
equity indices
Siefores’
Holdings
US$ 24.2 B
SOFOL
77
$6,000
4,904.3
Total issuance
US$ 84.6 B
38%
73%
19%
20%
37%
30%
41%
41%
45%
15%
44%
9%
13%
31%
34%
2%
* Includes Siefores’ holdings in Development Banks and Bank issuances. Data as of April 2011. Source: CONSAR and VALMER.
1. Includes PEMEX debt for an amount of US$0.86 billion in international markets and US1.84 billion in the local market.
Due to regulatory changes, investments in Multilateral Organizations are considered as Local Debt. Siefores’ holdings in this type of assets amount up to US$0.37 billion.
SOURCE: CONSAR-VICEPRESIDENCIA FINANCIERA
17
Pension Funds have increased their diversification in equity as
well.
Pension Fund’s Equity investments evolution.
(Mark to Market value, including derivatives)
24.00
ETF’s
investment
allowed
Pension Funds‘ Cross
Section into 5 funds
Direct investment
in local shares
(SB1, SB2, SB3, SB4 and SB5)
22.00
Local Equity
+/- 4%
18.00
16.00
14.00
12.00
Equity investment without
structured notes through ETFs
(Cost run by Pension Funds)
10.00
8.00
6.00
Local Equity
4.00
2.00
International Equity
Amafore agreement*
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
Jul-08
Aug-08
Sep-08
Oct-08
Nov-08
Dec-08
Jan-09
Feb-09
Mar-09
Apr-09
May-09
Jun-09
Jul-09
Aug-09
Sep-09
Oct-09
Nov-09
Dec-09
Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
US Billion
20.00
US $13 billion US $10.4 billion
26.00
Equity limits increased,
structured assets reclassification
*Due to the recent financial crisis, in this period, pension funds were only allowed to invest the new contributions in local markets
Figures in US billion. Data as of April 2011. Source: CONSAR.
18
Through the structured securities (called CKDs) Pension Funds
have financed different real economy projects.
Red de Carreteras de Occidente
NAVIX
MACQUARIE
PLA Inmuebles Industriales
Nexxus Capital IV General Partner
PROMECAP
AMB Mexico Manager
Infraestructura Institucional
Agropecuaria Santa Genoveva
Vertex Real Estate
EMX Capital
Artha Operadora
Capital Inmobiliario
Atlas Discovery México
MARHNOS
WAMEX Capital
664
347
352
307
307
243
301
219
229
208
221
206
254
200
241
175
175
145
146
133
133
130
214
105
133
97
62
52
-
AFORES
685
109
88
65
100
200
300
400
500
600
700
Total issuance
Within the structured securities has also been funded a Mexican REIT (called FIBRA) by
US$157 million (equivalent to 50.1% of the total issuance)
SOURCE: CONSAR-VICEPRESIDENCIA FINANCIERA
Santa Genoveva was issued under the structure of a Certificate
Data in million dollar as of April 2011
17
The competitive returns have been a central factor in order to
increase the worker’s account balances.
The system has been able to generate US$45.1billion of accumulated net returns,
representing 36.3% of the system balance.
120
120.0
124
Pension Funds Contributions and Returns
99.7
Net Returns
100
45.0
44.7
Contributions
81.2
Opening Balance
80
32.4
3.6
71.3
7.9
21.8
61.9
60
50.1
40.8
40
34.2
27.5
20
9.1
4.7
0
SOURCE: CONSAR.
7.9
22.5
0.3
0.1
0.0
0.5
4.0
0.3
dic-97
dic-98
0.4
1.4
3.2
4.4
dic-99
21.1
6.2
13.8
4.6
4.8
2.6
3.6
5.3
7.6
dic-00
11.3
dic-01
16.5
dic-02
8.4
6.6
13.7
5.8
9.9
dic-03
75.3
5.5
67.4
59.4
5.1
48.8
4.6
21.3
10.6
19.6
25.9
dic-04
31.0
dic-05
36.4
dic-06
42.3
dic-07
dic-08
dic-09
dic-10
abr-11
20
AIOS-OECD
Tour D’Horizon
México D.F., June 2011
Comisión Nacional del Sistema de Ahorro para el Retiro
Camino a Santa Teresa # 1040 8o. piso, Col. Jardines en la Montaña
Delegación Tlalpan, C.P. 14220, México D.F.
Tel. +52 (55) 3000-2608 y 3000-2548 www. consar.gob.mx