Investor Targeting Mitigates Pension Fund Redemptions

Potential changes to the rules governing pension funds and their administration in Latin America matter to our clients; these funds may account for an important portion of their shareholder base. While some regulatory changes are temporary and prompted by the global pandemic, other changes may be structural, with long-lasting effects on the local marketplace. We would advocate for the proactive diversification of a company’s shareholder base, in an effort to mitigate the risks that could result from regulatory changes to local pension funds.

COVID unemployment legislation. Higher unemployment stemming from the global pandemic has resulted in a meaningful uptick in early withdrawals from retirement funds. Mexico, for example, has already posted a 44% YoY increase (real-terms) of hardship withdrawals related to unemployment (YtD Jan-May 2020). Mexico, Chile, and Peru are among the countries that are currently discussing or have already implemented legislation that loosens the rules on early withdrawals from retirement funds. The advancement of this legislation is likely to dampen some companies’ share prices as fund administrators are obliged to sell stocks in order to meet these early redemption requests.

The specter of nationalization. One topic that continues to surface every so often is the nationalization of a country’s pension funds (most recently in Mexico), an idea which tends to weigh on local equity markets. This is because a nationalized system could potentially consolidate its AUMs and adopt a uniform approach towards portfolio allocation. While the nationalization conversation has been sidelined for now, this underscores the importance of proactively seeking to diversify a company’s shareholder base which could mitigate the risks associated with such regulatory changes.

How InspIR Group can help. It is commonly known that administered retirement funds (for example, Afores in Mexico, AFPs in Chile and a number of the very large private and public pension funds in Brazil), typically serve as long-term anchor investors in local equity and debt markets, and shrinkage in this investment pool could affect certain companies’ share prices as well as the composition of their investor bases.  Within this context, our advice to our clients is to enhance your marketing efforts now, with the goal of diversifying your shareholder base. InspIR Group can help you prepare for and build a virtual roadshow with institutional investors who are seeking quality investment opportunities within Latin America.

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Priscilla Nannetti, Senior Director
São Paulo
+5511 96586 9310

Monique Skruzny
New York
+1 212 661 2243

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