International managers have a new reason why to look into Latin America's second largest economy. It is expected that next January, Mexican Afores will be allowed to invest in international mutual funds.
Carlos Ramirez, president of the National Commission of the Savings System for Retirement (Consar), told Funds Society that "when looking to invest with an international manager we are looking for better returns, which we have seen so far with the mandates... Mutual funds are a mirror of the mandates and what we are really opening is another option to invest abroad, especially for the small and medium afores."
He considers that mutual funds are a cheaper and more used worldwide alternative than the mandates. "What we are doing here is expanding the range to allow for a greater diversification and allowing all the afores to use these new vehicles to gain greater diversification."
According to Ramirez, the authorization process of the mutual funds in which to invest will not be, as in the Chilean case, with a regulator based Risk Assessment Committee, but rather, the responsibility of the interested afore to demonstrate that the vehicle they want to invest in is adequate, as is now the case with ETFs.
Previously, in order to invest in ETFs, they had to be reviewed and authorized by Consar. Nowadays however, the process is done by Allfunds and the Afore’s association, the Amafore. "An intermediate mechanism that Amafore has will be used to see if mutual funds comply with the investment rules, Ramirez said.
According to a market player who preferred to remain anonymous until more information is available, "the Consar should make the rules the firms need to comply with in order to have eligible funds very clear, otherwise the market might get overwhelmed with firms that are not going to commit with the development of the industry here in Mexico."
Franklin Templeton's Manuel Alvarez told Funds Society that this is something the Amafore has been working on for over a year. "Of course we believe this is a positive thing, given it makes it so all the afores can have access to these vehicles, whereas before, not all of them had the capabilities to hire a mandate. Eligibility requirements should be quite restrictive at the beginning but, it is a start."
Juan Manuel Hernandez, Vanguard Mexico’s CEO said: “One of Vanguard’s core principles of investment success is balance. The idea of balance encompasses both a suitable asset allocation and diversified investments. This new policy – once approved - will further help Mexican afores seek balance in their portfolios and ultimately, achieve their investment goals.”