View
215
Download
2
Category
Preview:
Citation preview
FIAP Warsaw 2009 11
David Tuesta
Chief Economist of Global Trends Unit
Economic Research Department of BBVA
FIAP
Warsaw, Poland
28 May, 2009
Asset prices in the economic cycle: a historic perspective
FIAP Warsaw 2009 22
Contents
Basic aspects for pension fund development
Demographics and economic structural variables
Size of Latin American pension funds
1
2
3 Current crisis impact on pension funds
4
Stock Exchange Markets
Developed vs. emerging countries
Short and long-term profitabilities
Regulations
Pension fund answers to the current financial crisis
5
Ageing pension funds
Portfolios allocation
Conclusion
FIAP Warsaw 2009 33
Demographics and economic structural variables are the main determinants of the current and future performance of pension
schemes
1 Basic aspects for pension fund development
Per capita GDP (constant US$)
Labor informality (% population
not covered by social security)
Labor legislation
Protectionism (index)
Population of 65 years old and over
Chile Colombia Mexico Peru
7,370 2,954 7,537 2,317
24% 49% 41% 71%
2005 8% 5% 6% 6%
2050 22% 18% 21% 16%
24 27 38 61
Source: BBVA ERD
FIAP Warsaw 2009 44
Contents
Basic aspects for pension fund development
Demographics and economic structural variables
Size of Latin American pension funds
1
2
3 Current crisis impact on pension funds
4
Stock Exchange Markets
Developed vs. emerging countries
Short and long-term profitabilities
Regulations
Pension fund answers to the current financial crisis
5
Ageing pension funds
Portfolios allocation
Conclusion
FIAP Warsaw 2009 55
Since their creation, private pension funds in Latin America have grown continuously. The slope of the growth depends on
the parameters of each pension scheme, financial market development, maturity of the system, as well as social and
economic factors
Size of Latin American pension funds2
Chile
Colombia
Mexico
Peru
1995 2000 2004 2008
38% 42% 59% 61%
3% 5% 9% 16%
-.- 3% 5% 8%
3% 5% 10% 15%
Source: BBVA ERD
Private Pension Funds
(as a percentage of GDP)
FIAP Warsaw 2009 66
Mexico Peru Colombia Chile
11 15 15 27
6.5% 10% 11% 10%
8% 10% 7% 10%
56% 22% 27% 69%
Size of Latin American pension funds2
Private Pension Funds 2008
(as a percentage of GDP)
Maturity of Private schemes (years of existence)
Contribution rate
Labor force participation in mandatory private funds
Historical real return
Some variables that are fundamental for the size of private funds
8%15% 16%
61%
0%
20%
40%
60%
80%
Source: BBVA ERD
*
* Not included social quota
FIAP Warsaw 2009 77
Contents
Basic aspects for pension fund development
Demographics and economic structural variables
Size of Latin American pension funds
1
2
3 Current crisis impact on pension funds
4
Stock Exchange Markets
Developed vs. emerging countries
Short and long-term profitabilities
Regulations
Pension fund answers to the current financial crisis
5
Ageing pension funds
Portfolios allocation
Conclusion
FIAP Warsaw 2009 8
Latam Stock MarketsJan 08 = 100
20
40
60
80
100
120
140
Jul-07
Aug
-07
Sep-
07O
ct-0
7N
ov-0
7D
ec-0
7Ja
n-08
Feb-
08M
ar-0
8Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep-
08O
ct-0
8N
ov-0
8D
ec-0
8Ja
n-09
Feb-
09M
ar-0
9Apr
-09
Argentina Brazil ChileColombia Mexico PeruVenezuela
Source: Bloomberg
Current crisis impact on pension funds3
The financial crisis not only affected developed countries but also Latin American markets
Asset prices registered a deep fall and regional investment reflected a bigger increase in country risk
Spread Embi (bp)
0
100
200
300
400
500
600
700
800
Jul-07
Aug
-07
Sep-
07O
ct-0
7N
ov-0
7D
ec-0
7Ja
n-08
Feb-
08M
ar-0
8Apr
-08
May
-08
Jun-
08Ju
l-08
Aug
-08
Sep-
08O
ct-0
8N
ov-0
8D
ec-0
8Ja
n-09
Feb-
09M
ar-0
9Apr
-09
0
500
1000
1500
2000
2500
Brasil Chile
Colombia Perú
Mexico Argentina*
Venezuela*
Source: Datastream *Right side
FIAP Warsaw 2009 9
Current crisis impact on pension funds3
Pension funds have suffered from the crisis…
2008 pension fund nominal returns in selected countries (%)
Source: OECD
10,79,5
5,04,74,13,7
-0,3-0,4-0,9-1,3
-2,8-3,9
-6,1-6,4
-8,1-8,5
-10,2-10,5
-11,6-12,9-13,1
-14,0-14,0-14,3-14,4
-16,2-16,3
-18,0-18,0-18,4-19,0-19,5-19,9
-21,6-23,4
-30,2-35,0
-40 -35 -30 -25 -20 -15 -10 -5 0 5 10 15
EgyptTurkeyAlbania
ColombiaKorea
Costa RicaMexico
ThailandGreece
Czech RepublicKenya
ItalyGermany
Slovak RepublicSpain
NorwayMacedonia
SwitzerlandPortugalAustriaIceland
DenmarkSwedenPoland
United KingdomFinland
HungaryNetherlands
BelgiumAustralia
JapanCanada
LithuaniaBulgaria
United StatesHong Kong
Ireland
FIAP Warsaw 2009 10
Current crisis impact on pension funds3
However, the pension funds of developed countries have been the most affected because of their high equity
exposure
Source: OCDE Global Pension Database
France
Sweden
Chile
100
80
60
40
20
020 40 60 80 100 120 140 160
United StatesCanada
UK
Asset
Allocati
on
(%
eq
uit
ies a
nd
mu
tual fu
nd
s)
Total Pension Assets (% GDP)
Netherlands
SwitzerlandDenmark
Australia
South Africa
Ireland
Finland
Japan
Mexico
Germany
Pension Plan Assets by Country, end 2007
The biggest Latin American pension funds, Mexico (persons) and Chile (assets), have been affected as well,
but to a lesser degree
FIAP Warsaw 2009 11
Colombia: Net Yield(pesos bn)
-4
-3
-2
-1
0
1
2
3
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-08
Aug
-08
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Chile: Net Yield(Real pesos bn)
-8000
-6000
-4000
-2000
0
2000
4000
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-08
Aug
-08
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mexico: Net Yield(pesos bn)
-60
-40
-20
0
20
40
60
80
100
120
ene-
08
feb-
08
mar
-08
abr-
08
may
-08
jun-
08
jul-08
ago-
08
sep-
08
oct-
08
nov-
08
dic-
08
ene-
09
feb-
09
mar
-09
Yields of Latin American
countries have been affected
but others have earned profits
Current crisis impact on pension funds3
Peru: Net Yield(New Soles bn)
-10
-8
-6
-4
-2
0
2
4
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-08
Aug
-08
Sep-
08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
FIAP Warsaw 2009 12
Current crisis impact on pension funds3
Source: BBVA ERD
*February 2009 Data
Period Net Yields of Commissions(bn pesos December 2007)
0
1
2
3
4
5
6
7
8
9
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
ColombiaPeriod Net Yields of Commissions
(bn pesos December 2007)
-15000
-10000
-5000
0
5000
10000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: BBVA ERD
*February 2009 Data
Chile
Source: BBVA ERD
*February 2009 Data
Period Net Yields of Commissions(bn new soles December 2007)
-15
-10
-5
0
5
10
15
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Peru
Source: BBVA ERD
*March 2009 Data
Period Net Yields of Commissions(bn pesos December 2007)
-10
0
10
20
30
40
50
60
70
80
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Mexico
Net yields of commissions have been
affected but almost all have earned profits
FIAP Warsaw 2009 13
Current crisis impact on pension funds3
The long-term yields have not been affected in Latin American
31.1%
31.1% (2008)
33.5% (2007)
Colombia
Source: BBVA ERD
*February 2009 Data
Thus, regardless of the “minusvalías”, the value of the net yields of commissions still register an important long-term growth:
Breakdown of Administration Resources Balance
(bn pesos December 2007)
-
10
20
30
40
50
60
70
80
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Accumulated netyields of commissions
Period netcontributions
Initial balance
FIAP Warsaw 2009 14
Breakdown of Administration Resources Balance
(bn pesos December 2007)
-
10.000
20.000
30.000
40.000
50.000
60.000
70.000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Accumulated netyields of commissions
Period netcontributions
Initial balance
Current crisis impact on pension funds3
24.3%
24.3% (2008)
31.7% (2007)
Source: BBVA ERD
*February 2009 Data
Chile
The long-term yields have not been affected in Latin American
Thus, regardless of the “minusvalías”, the value of the net yields of commissions still register an important long-term growth:
FIAP Warsaw 2009 15
Current crisis impact on pension funds3
27.6%
Peru
Breakdown of Administration Resources Balance
(bn new soles December 2007)
-
10
20
30
40
50
60
70
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Accumulated netyields of commissions
Period netcontributions
Initial balance
Source: BBVA ERD
*February 2009 Data
27.6% (2008)
35.8% (2007)
The long-term yields have not been affected in Latin American
Thus, regardless of the “minusvalías”, the value of the net yields of commissions still register an important long-term growth:
FIAP Warsaw 2009 16
Breakdown of Administration Resources Balance
(bn pesos December 2007)
-
200
400
600
800
1.000
1.200
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Accumulated netyields of commissions
Period netcontributions
Initial Balance
Current crisis impact on pension funds3
55.7%
55.7% (2008)
61.2% (2007)
Source: BBVA ERD
*March 2009 Data
Mexico
The long-term yields have not been affected in Latin American
Thus, regardless of the “minusvalías”, the value of the net yields of commissions still register an important long-term growth:
FIAP Warsaw 2009 17
Current crisis impact on pension funds3
The most important thing has been the accumulated real yield in Latin America registered 7.9% in 2008.
Reformed Pension Systems in LATAM*
1998 11,7%1999 14,7%2000 12,5%2001 11,8%2002 10,7%2003 10,6%2004 10,2%2005 10,1%2006 10,4%2007 10,2%2008 7,9%
*/ weight average by administrative assets of the systems profits in Colombia, Chile, Peru y Mexico
Source: BBVA ERD
**/ Figure out by accumulated net yield of commissions in each system.
Accumulated Real Yield**
FIAP Warsaw 2009 18
Current crisis impact on pension funds3
A multifund model linked to the affiliates’ life cycle has been an important element in strengthening the pension fund system
The majority of affiliates have investment options with intermediate or conservative exposure to equities
*People cannot be in more than one SB by law therefore the diagonal sum is 100%.
*Mexico: Affiliates by age - pension multifund scheme (Siefore)*-26 +27-36 +37-45 +46-55 over 55 years old
SieforeSB1-More Conservative 13,3%SB2-Conservative 37,4%SB3-Intermediate 26,1%SB4-Risk 14%SB5-Riskiest 9,20%Source: Consar
Chile: Affiliates by type of funduntil 20 +20 -25 +25 -30 +30 -35 +35 -40 +40 -45 +45 -50 +50 -55 over 55 years old
FA- Riskiest 8,4% 21,9% 18,9% 15,0% 12,3% 10,6% 8,0% 4,0% 0,8%FB- Risk 7,7% 18,3% 22,0% 23,2% 21,9% 2,5% 1,4% 1,5% 1,6%FC- Intermediate 0,1% 0,6% 1,2% 1,5% 22,0% 26,6% 23,9% 16,6% 7,4%FD- Conservative 0,0% 0,2% 0,6% 1,0% 1,2% 1,4% 1,4% 26,7% 67,5%FE- More Conservative 0,5% 2,4% 7,0% 11,5% 14,2% 15,7% 15,2% 13,2% 20,3%Source: Superintendencia de Pensiones
FIAP Warsaw 2009 19
Current crisis impact on pension funds3
0
5
10
15
20
25
< de 25 25a29 30a34 35a39 40a44 45a49 50a54 55a59 > de 59
Fondo 2
Fondo 3
Peru: Affiliates by age and type of fund* (%)
Source: AFP Horizonte
*Fund 1 is not included because 96% of affiliates are over 55 years old
Older affiliates, with less time to recover possible losses, prefer the most conservative fund (Fund 2), while younger ones
choose the higher risk fund (Fund 3)
A multifund model linked to the affiliates’ life cycle has been an important element in strengthening the pension fund system
FIAP Warsaw 2009 20
Current crisis impact on pension funds3
Some Problems in Latin American “multi-fondos” DC systemsSome Problems in Latin American “multi-fondos” DC systems
Members can only choose one fund, defaults assign members to single fund; combination of two may be optimal
Members can only choose one fund, defaults assign members to single fund; combination of two may be optimal
Each “multi-fondo” has a fixed equity-bond allocation and does regular rebalancing; details of strategic asset allocation left to AFPs, reviewed regularly
Each “multi-fondo” has a fixed equity-bond allocation and does regular rebalancing; details of strategic asset allocation left to AFPs, reviewed regularly
Some SuggestionsSome Suggestions
Pension funds measure performance against market benchmark, not average industry return
Pension funds measure performance against market benchmark, not average industry return
How you choose in the cumulative phase impacts management in the pay out phaseHow you choose in the cumulative phase impacts management in the pay out phase
Allow international diversificationAllow international diversification
Source: OECD
Regulator defines the default age-based investment glide path after a full calibration of model for a typical worker/s
Regulator defines the default age-based investment glide path after a full calibration of model for a typical worker/s
The default life-cycle model has step changes in asset allocation rather than gradual shiftsThe default life-cycle model has step changes in asset allocation rather than gradual shifts
Strategic asset allocations change with market conditions, no rebalancing age-based default asset allocations moving around
Strategic asset allocations change with market conditions, no rebalancing age-based default asset allocations moving around
FIAP Warsaw 2009 2121
Contents
Basic aspects for pension fund development
Demographics and economic structural variables
Size of Latin American pension funds
1
2
3 Current crisis impact on pension funds
4
Stock Exchange Markets
Developed vs. emerging countries
Short and long-term profitabilities
Regulations
Pension fund answers to the current financial crisis
5
Ageing pension funds
Portfolios allocation
Conclusion
FIAP Warsaw 2009 22
Regulation and supervision schemes in Latin America have been extensive and precise
Pension fund answers to the current financial crisis4
Risk management supervisionRisk management supervision
Safeguarding the pensioners’ interests with adequate government policiesSafeguarding the pensioners’ interests with adequate government policies
Design of elements with adequate information to mitigate risksDesign of elements with adequate information to mitigate risks
Avoiding moral hazard: “fiduciary” responsibility and conflicts of interestsAvoiding moral hazard: “fiduciary” responsibility and conflicts of interests
Adequate measures for improving portfolio allocationAdequate measures for improving portfolio allocation
Multifund: restrictions by ageMultifund: restrictions by age
Portfolio diversification Portfolio diversification
Giving precise information to pensionersGiving precise information to pensioners
Internal and external control of funds valuationInternal and external control of funds valuation
Having minimum reservesHaving minimum reserves
FIAP Warsaw 2009 23
Mexico
Oct-08
Reduction of the long-term instruments supply
Re-Purchase instruments
Swaps of interest rate until $50 bn
Allow to temporary exceed the VAR levels authorized
Nov-08
Authorization to Siefore for contracting credits in order to liquidate with future flows
Flows coordination (collection & liquidación de traspasos)
Temporary suspension of the automatic traspaso of Siefore by changes of the affiliates age
Measures by financial authorities(SHCP, Bank of Mexico & Consar)
Measures by Congress
Dec-08
SAR law reform
More rights to Consar for authorizing commissions
Quarterly instead of half Consar reports to the Congress
Send at least 3 balance to worker instead of 2
Consar has faculties to establish measures that could protect worker resources in atypical circumstances in the financial markets
The Board of Governors of Consar can modify the investment regimen and reorganize the Siefore portfolios in extraordinary circumstances
Measures by Industry
Feb-09
Afore agreement
2009 giving follow up to SAR resources for investing in financial instruments and productive projects in Mexico
Considering infrastructure projects that could be compatible with the investment regimen
Continuing participating in housing financing, states and council projects
Pension funds answers over the current financial crisis4
The reaction, facing the current financial crisis, has been quick
FIAP Warsaw 2009 24
Peru-Creating a fourth fund with low risk. Investment of this new fund will be in fixed trade instruments (bonds, deposits and others).
-Creating the Infrastructure Fund. The Pension Fund Administrators (AFP) will invest in this new fund, improving the investors yield with long-term projects.
-Modification approach of the AFPs commissions charge scheme, changing from a fixed commission to a mixed new type. In the fixed part will correspond a percentage of affiliate remuneration while the variable part will determine in function of pension fund profits.
-Different approaches are addressed to protect workers affiliate to the pension private system and will be unemployed.
Chile -Flexibilization in the balance distribution process, affiliates who have their savings in two kinds of funds, will choose the new fund which received the new quotations.
-Affiliates who have their savings just in one fund can choose a second type of fund to receive new quotations, without balance redistribution
Pension funds answers over the current financial crisis4
The reaction, facing the current financial crisis, has been quick
FIAP Warsaw 2009 25
Allocating their portfolios in low volatility assets and with a lesser degree in changes risks
Latin American pension funds search to protect their investment
Pension funds answers over the current financial crisis4
Source: BBVA ERD
Fixed Income -Latam pension funds (Fixed income share % in the system portfolio)
0
10
20
30
40
50
60
70
80
90
100
Mexico Colombia Chile Peru
jul-08
dec-08
Source: BBVA ERD
Domestic Investment -Latam pension funds(Domestic investment share % in the system portfolio)
0
10
20
30
40
50
60
70
80
90
100
Mexico Colombia Chile Peru
jul-08
dec-08
FIAP Warsaw 2009 2626
Contents
Basic aspects for pension fund development
Demographics and economic structural variables
Size of Latin American pension funds
1
2
3 Current crisis impact on pension funds
4
Stock Exchange Markets
Developed vs. emerging countries
Short and long-term profitabilities
Regulations
Pension fund answers to the current financial crisis
5
Ageing pension funds
Portfolios allocation
Conclusion
FIAP Warsaw 2009 27
None crises are the same and we do not know, how long is going to length the current one
Conclusion
Recession Length(months)
YieldAfter a year
Negative
Yield
Great Depression (1929-1932)
World War II (1937-1942)
Post War II (1946-1949)
Oil Crisis (1973-1974)
Debt Crisis (1980-1982)
Stock Exchange Crash (1987)
Internet Bubble (2000-2001)
34
61
37
21
21
4
31
-86%
-60%
-30%
-48%
-27%
-34%
-49%
124%
59%
42%
38%
58%
23%
34%
Current Crisis (2007- ?) 18.5 -46% ?
Average 13 Crisis
(exclusion the current crisis)22 -39% 46%
Source: ISI, Bloomberg, National Bureau of Economic Research, Haver Analytics
(1)
(1) Accumulated Fall of S&P 500 Index
5
FIAP Warsaw 2009 28
• Solidarity Pillar: Incentives in voluntary savings• Solidarity Pillar: Incentives in voluntary savings
New Proposals
Conclusion5
Latin American pension fund systems are well-placed to face and recover from the current crisis
Structural problems need to be resolvedStructural problems need to be resolved
• Coverage: Mandatory and/or opt-out schemes for self-employed and non-contract workers
• Coverage: Mandatory and/or opt-out schemes for self-employed and non-contract workers
• Disability and survivor benefits• Disability and survivor benefits
• Implicit debt reduction• Implicit debt reduction
• Equity diversification, taking into account considerations for mandatory pension funds
• Equity diversification, taking into account considerations for mandatory pension funds
• Competition, fees and financial knowledge• Competition, fees and financial knowledge
FIAP Warsaw 2009 29
Chile Peru Mexico
BBVA promotes debate, research and the improvement of pension systems
Colombia
Conclusion5
FIAP Warsaw 2009 3030
David Tuesta
Chief Economist of Global Trends Unit
Economic Research Department of BBVA
FIAP
Warsaw, Poland
28 May, 2009
Asset prices in the economic cycle: a historic perspective
Recommended