Looking forward to retirement: Strong performance boosts attraction of pension funds

Since 1997, the Mexican retirement savings system has operated under the defined contribution system of individual capitalisation that replaced the pay-as-yougo system (defined benefit). Under this regime, contributions are compulsory for employee, employer and government, with the National Commission for the Pension System (Comisión Nacional del Sistema de Ahorro para el Retiro, Consar) the main regulator.


The financial institutions managing pension funds are the retirement fund administrators, known in Spanish as “administradoras de fondos para el retiro”, or Afores. There are currently a total of 11 Afores in Mexico, managing 50.9m accounts, 5% more than in 2012. An important change in the market in 2013 was the acquisition of the pension funds division of Bancomer BBVA by Banorte, which created the largest Afore of the system. In February 2014, Consar authorised the acquisition of Afirme Bajío by Profuturo GNP. According to Carlos Ramírez, president of Consar, size counts, since there are significant economies of scale and these recent acquisitions could lead to more mergers and acquisitions, thus increasing concentration of the market. This is not necessarily a bad thing and the key issue is to promote healthy competition among the existing ones, he said. The resources are divided among different types of funds called specialised retirement investment funds, known in Spanish as “sociedades de inversión especializada en fondos para el retiro”, or Siefores, and are separated into basic and additional types. Basic Siefores are divided according to the age of contributors: SB1 covers contributors over 60 years old, SB2 from 45 to 59, SB3 from 37 to 45 and SB4 under 36. The limits of the permitted types of assets for each fund are defined by the regulator.

Each Afore has the four basic funds defined by law and the composition of additional funds are defined by the Afore which created it (respecting parameters defined by the regulator). There are 17 additional funds, two managed by Banamex, one by MetLife, three by Profuturo GNP, one by Sura and 11 by XXI Banorte.

By Numbers

Afores manage a total of MXN2.09trn ($162.39bn) in net assets, which is comprised of MXN2.05trn ($159.29bn) for basic funds, or 98.4%, and MXN39.9bn ($3.1bn) for additional funds, some 1.6% of the total. In line with 2013 values, this total was 12% of national GDP. The largest fund is SB2, with MXN678.72bn ($52.74bn), or 33%; SB3 accounts for 32% of resources, SB4 29% and SB1 6%. Thus, the group of people closer to retirement is much smaller than the ones whose participants will still contribute for decades. According to Tonatiuh Gómez, general director of Afore XXI Banorte, the demographic structure will continue to be favourable for the next 15 years, so prospects are still positive for sector’s development.

From 2012 to 2013 liquid assets held by Afores grew by around 8% from MXN1.9trn ($147.63bn) to MXN2.1trn ($163.17bn). Basic funds increased 7.6% and additional funds 17.7%. In fact, since their creation, liquid assets have expanded from MXN6.2bn ($481.74m) in 1997 to MXN2.1trn ($163.17bn) in 2013, an annual average growth rate of about 40%. Over the past five years, this rate has risen by 18% annually. Despite its reduced participation, additional funds have performed strongly, expanding at an annual rate of 60%. The largest Afore in terms of liquid assets is XXI Banorte, with 26% of the total, or MXN544.9bn ($42.34bn), followed by Banamex (17%), Sura (14%) and Profuturo GNP (12%). No other Afore reaches 10% of market share. Until 2012 Banamex was the largest, but XXI Banorte (the fourth largest) moved into this position after buying Bancomer, the second largest. The recent acquisition of Afirme Bajío by Profuturo GNP will not change the composition, since Afirme Bajío’s market share is only 1%.


The company with the best performance from 2012 to 2013 regarding volume of assets was XXI Banorte with a 120% growth, mainly due to the acquisition of Bancomer. Excluding the resources obtained through the acquisition, growth was 4%. Azteca had its resources increased by 88.5%, Invercap 25.5% and Coppel 25%. Afirme Bajíio and PensionISSSTE had the worst performances with a 11% and 7% decrease in their resources, respectively. Over the past five years, XXI Banorte had the highest annual growth rate, 57% (or 35% excluding assets from Bancomer). Coppel was second with a 47% annual growth rate and Principal third with 30%. Inbursa and Afirme Bajío had the lowest rate, 1% and 7%, respectively: these were the only firms that grew below 15% a year. From July 1997 to December 2013, the annual rate of return was 12.7% in nominal terms and 6.2% in real terms. Comparing the four basic funds, SB4 had real annualised growth of 7.9%, SB3 of 6.9%, SB2 of 6.1% and SB1 of 4.6%. Therefore, real returns are higher on the groups that concentrate younger contributors, which makes sense considering funds for people closer to the age of retirement have to be more conservative and, thus, tend to be less profitable. Sura was the Afore with higher real profitability in SB2, SB3 and SB4 (7.4%, 8.5% and 9.9%, respectively). Invercap had the highest return on SB1 (5.2%).


Liquid assets held by Afores correspond to 21.9% of domestic savings. Afores manage 15.9% of the economy’s assets, which is less than banks (51.7%), but greater than insurance firms, development banks and investment funds. Of the total volume of government debt in December 2013 – MXN1.15trn ($89.36bn) – 12.8% was held by Afores, while for long-term debt (more than 10 years), the volume was close to 40%. Afores have also been important in financing private and public productive investments. The amount invested in long-term debt, MXN1.57trn ($121.99bn) represented 23% of the total volume of these instruments. In sectors with a large volume of debt issued, such as housing and infrastructure, their participation reached 30%. Moreover, Afores provided 45% of the finance for development banks and 56% for the food and beverage industry. As Ramírez told OBG, Afores’ appetite for public bonds allowed the government to issue longer-term debt and helped to boost the market’s depth. Moreover, by Afores increasingly investing in productive sectors, job creation has improved. Given their current importance for Mexican capital markets, they can be considered market makers. Maria Tapia, a senior financial officer at the Inter-American Bank of Development (IABD), said that at present capital markets seem a more promising way to promote development than banks. The IABD is making efforts to get new issuers to the market, but issuers that can bring value to the system such as social and environmental sustainability, would be much harder without the existing liquidity provided by Afores. In February 2014 the investment of Afores were mostly composed of government debt (51.5%), followed by national private debt (18.5%), foreign variable income instruments (16.3%) national variable income (8%), structures instruments (4.1%) and international debt (1.6%).

Tides Of Change

In spite of government debt still accounting for more than 50% of the investments, there has been a diversification from these instruments and their importance today is much lower than in previous years. In December 2013 it reached its lowest value and, for the first and only time, was below 50% of the total, rising again in the following months. Nevertheless, Afores today have a much more diversified and complex portfolio. According to Consar’s quarterly report, diversification from government debt was possible after the Mexican financial system gained more depth, thus offering more alternatives to investments. Over the years, there were also changes in regulation that allowed Afores to invest in a wider range of assets. In the past five years, the instruments with highest growth in the share of total investments were structured assets, rising from 0.2% to 4.1% of the total (up 194%), still, however, comprising a small fraction of the total. International variable income grew 306%, national variable income 78% and national private debt 17%. Government and international debt by their turn had their shares reduced by 71% and 26%, respectively. Afores’ investments are also more internationalised, as a result of changes in regulation. Notwithstanding, permission to increase global investments is likely to be a critical issue for the future. As Tonatiuh Gómez, general director of Afore XXI Banorte, told OBG, there is a concern that Afores could become too large for the domestic market, thus creating bubbles in financial markets. Regulators have noted this issue. “We are aware of the necessity of increasing limits for international investments and allowing Afores to diversify even more of their portfolio, but such changes have to be done in a cautious way,” Ramírez told OBG.

Regarding regulation, in 2014 there will be discussions for changes in several topics, including a new model for the transfer of individual accounts among Afores, changes on the charging scheme towards a single commission based on the volume of assets and the performance of the funds, and changes in the investment regime. As Ramírez told OBG, there have been frequent changes in the law governing transfers. In 2011, for instance, an attempt to give more flexibility to the system resulted in a record number of transfers and a commercial war among Afores. To mitigate excessive transfer of funds, there are new changes planned, such as the increase from one to two years of the minimum length of time resources have to stay in one Afore and the regulation of commercial agents.

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The Report: Mexico 2014

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