On investment decisions of pension fund managers in Mexico

Yesterday was announced that the PFM agreed to invest incoming resources only in Mexico, despite that the investment regime allows PFM to invest up to 20% of the portfolio in international financial instruments. One of the arguments for the reform of pension system around the continent was that under privately managed firms, the funds would be invested according only to risk and returns criteria, avoiding the distraction of reserves to the called “social or economic goals”, which in general have low rates of return. Unfortunately, it has been observed that this has not been the case: i) the investment regime is very strict, which has implied that the majority of the portfolios of pensions funds are invested in government bonds (see a graphs on this in a previous note), and ii) we see, as is happening today in Mexico, that funds are used in temporary situations to support objectives of macroeconomic policy different from the one for which the funds are being accumulated, that is, to guarantee the highest pension to affiliates.