Political Risk Latin America Blog @PolRiskLatam

Peru asset managers: Running out of room

Posted in News and Articles, Political Risk by politicalrisklatam on October 8, 2010

by The Economist Intelligence Unit, October 8th, 2010.

Peru’s private pension managers risk becoming victims of their own success, as assets under management threaten to exceed the supply of securities that they are allowed to invest in.

Peru’s private pension system is growing at a blistering pace, with assets under management more than doubling since 2005. This creates an enviable problem: assets are growing so quickly that the country’s private sector pension managers (known as administradoras de fondos de pensiones, or AFPs) are running out of things to invest in.

The natural step is for AFPs in this small economy to invest more of their assets abroad, which they have increasingly done. However, in doing so, they have butted against regulatory caps on exporting capital.

Regulators recognise this limitation, so they have raised the foreign-investment ceiling steadily in recent years. The cap has now reached the 30% limit established in the pension system law, meaning an act of Congress will be needed to raise it further. (continue reading… )

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