pension investment and capital market development · 2016-03-29 · pension investment and capital...
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Pension investment and capital market development
David Tuesta
OECD/IOPS Global Forum on Private Pensions
November 15th 2007
Beijing
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1. The importance of macroeconomics
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-Macroeconomics is a “fundamental factor”.
- Sound fiscal and monetary policies. The design of
macroeconomic institutions (rules).
- Reduction of financial volatility
- An important step to develop a “virtuous circle” with capital
markets and pension investments
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2. The importance of Capital Market Liberalization and
its interaction with Pension Investments
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- Gradual liberalization of financial markets as a key variable
for delivering higher returns and lower risks.
- These gradual advances will depend on:
. Macroeconomic institutions.
. Permanent monitoring of financial markets.
. Regulation, transparency and market failures.
. Regulators learning and experience
- Positive experience in Latin America.
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3. QAR, PPR, Maximums and Minimums
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- How well developed is your financial market?
- The importance to have some quantitative limits when capital
markets is not well developed.
- Maximum limits in Latin America.
- Other factors that influence limits
- PPR as a ideal scenario for clever regulation
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QAR, Argentina
Productive operations, minimum requirement of 5%
Government debt could be extended to 100% under especial conditions.
10%
10%
10%
10%
10%
20%
20%
20%
20%
20%
20%
30%
30%
40%
40%
40%
50%
50%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55%
PUBLIC FOREIGN INSTRUMENTS
FOREIGN INSTRUMENTS
NEGOTIABLE CONTRACT AND FUTURE OPTIONS
DIRECT INVETMENT FUND
STRUCTURED FIDUICIARY OPERTIONS
SHORT RUN NEGOTIABLE OPERATIONS( 2 )
NEGOTIABLE OPERATION PRIVATIZED FIRMS
CORPORATE PRIVATIZED SHARES
COMMON FUNDS
OTHER FIDUICIARIE OPERATIONS
PRODDUCTIVE OPERATIONS
INFRAESTRCUCTURE
GOVERNMENT DEBT
PLAZO FIJO 2
LONG RUN OBLIGATIONS( 2 )
CONVERTIBLE LIABILITIES
MORTGAGE
NATIONAL PUBLIC CREDIT OPERATIONS1
CORPORATIVE SHARES
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Chile and the Comisión Marcel proposals:
• To reduce investment limits and simplify regulation
• To create an investment council to provide more flexibility
• To foster more transparency
Main charcteristics:
1. Proposals to reduce limits
2. Proposals to allow more foreign investment:
• Relaxing foreign limits / foreign assets
• Derivatives
3. Proposals of risk managment
• Possibility of market risk indicators.
4. Proposal toward self-regulation and more transparency
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4. Latin America and investment choice in mandatory
individual account pension system
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- The importance to foster choice in mandatory individual
account pension system: efficiency, better and consistent
returns, lower risks, regulation.
- Some market failures and structural factors that limits
efficient choice and active participation. The case of Latin
America.
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Mexico 20085 multifunds
Colombia ?
Chile 20025 multifunds
Peru 20053 multifunds
Argentina ?
Movement toward multifunds:
Expected
returnExpected risk
Fund 1
Conservativelow low
Fund 2
Balancedmedium moderate
Fund 3
Growthhigh high
Number of multifunds in Peru• Risk and preferences• Diversification• Regulatory lighten up
Some countries have introduced different alternatives to diversify their portfolios by introducing “multiples fund” schemes that offer different combinations of assets
that balance risk and return.
Regulation leaves the decision to the affiliate, although they are some restrictions
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Multifunds: limits and participation
Max Min
A 80% 40% 20,849 21%
Chile B 60% 25% 22,788 23%
C 40% 15% 43,290 44%
D 20% 5% 10,118 10%
E 0% 0% 1,376 1%
98,421
Perú 3 80% 25% 2,686 14%
2 45% 15% 15,062 81%
1 10% 0% 942 5%
18,690
Mexico 2 15% 656 90%
1 0% 72 10%
728
%Limits in sharesCountry Multifund Mill US$
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Source: SAFP. 2007, Agosto
Chile´s multifund: Active choice and the default option
88%77% 73% 69% 68%
12%20% 23% 27% 31% 32%
80%
0%
25%
50%
75%
100%
2002 2003 2004 2005 2006 2007
Defalut option Active choice
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5. The importance to deliver better returns
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- Returns as a fundamental determinant for delivering better
pensions.
- Gradual liberalization of capital markets is necessary in
order to pursue that goal.
- A more liberalized market will likely provide:
. A more diversified portfolio
. Less volatility in the long run
. More alternatives to develop financial instruments
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(from 6 % to 7%)
(from 3 % to 4%)
(from10 % to11%)
(from 65 to 66 years- old)
(from 35% to 36%)
(froom 14 to 15 years-old)
Effect on Pensions
-7%
3%
3%
10%
18%
24%
-10% 0% 10% 20% 30%
Years of living
Density of contribution
Age for retirement
Contribution rate
Productivity
Return
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Portfolio structure 80s
0%
20%
40%
60%
80%
100%
Mexico Peru Costa Rica Ecuador Chile
Government MortageLong term deposits SharesReal state Others
Portfolio structure 2006
0%
20%
40%
60%
80%
100%
El Salvador Bolivia Mexico Argentina Uruguay Colombia Peru Chile
Others
Foreign investment
Private and investment funds
Shares
Non financial institutions
Financial institutions
Public debt
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Pensions Funds and National Savings
Source:
BBVA, Schmidth-Hebbel (2003), Moron
and carranza (2004)
According to BBVA (2005), a 10 % increase in pension fund stocks increases the national savings rate by 0.4%.
For the Chilean system, according to Corbo and Schmidt-Hebbel (2003), the reform implies an increase in national savings rate between 1 and 5 % of GDP.
For the Peruvian system, according to Moron y Carranza (2004), the reform produces a 1% increase in economic growth and between 5-10% in national savings.
ARG94
ARG02
CHI81
CHI85
CHI90CHI95
CHI00CHI03
-12,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
-30,0 -15,0 0,0 15,0 30,0 45,0 60,0
*Variables ortogonales a la tasa de dependencia demográfica y el grado de educación.
National savingsrate
(as a % of GDP)
PF Stock (as a % of GDP)
Observed/. Forcasted
ARG94
ARG02
CHI81
CHI85
CHI90CHI95
CHI00CHI03
-12,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
-30,0 -15,0 0,0 15,0 30,0 45,0 60,0
*Variables ortogonales a la tasa de dependencia demográfica y el grado de educación.
National savingsrate
(as a % of GDP)
PF Stock (as a % of GDP)
Observed/. Forcasted
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Pension Funds in Reformed Systems*
Source: FIAP
*Chile, Mexico, Colombia, Argentina and Peru
Million US$
Chile
Perú
Colombia
Argentina México0%
10%
20%
30%
40%
50%
60%
70%
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
0
50,000
100,000
150,000
200,000
250,000
1981
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
% GDP
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Portfolio structure 80s
0%
20%
40%
60%
80%
100%
Mexico Peru Costa Rica Ecuador Chile
Government MortageLong term deposits SharesReal state Others
Portfolio structure 2006
0%
20%
40%
60%
80%
100%
El Salvador Bolivia Mexico Argentina Uruguay Colombia Peru Chile
Others
Foreign investment
Private and investment funds
Shares
Non financial institutions
Financial institutions
Public debt
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22
Pensions Funds and National Savings
Source:
BBVA, Schmidth-Hebbel (2003), Moron
and carranza (2004)
According to BBVA (2005), a 10 % increase in pension fund stocks increases the national savings rate by 0.4%.
For the Chilean system, according to Corbo and Schmidt-Hebbel (2003), the reform implies an increase in national savings rate between 1 and 5 % of GDP.
For the Peruvian system, according to Moron y Carranza (2004), the reform produces a 1% increase in economic growth and between 5-10% in national savings.
ARG94
ARG02
CHI81
CHI85
CHI90CHI95
CHI00CHI03
-12,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
-30,0 -15,0 0,0 15,0 30,0 45,0 60,0
*Variables ortogonales a la tasa de dependencia demográfica y el grado de educación.
National savingsrate
(as a % of GDP)
PF Stock (as a % of GDP)
Observed/. Forcasted
ARG94
ARG02
CHI81
CHI85
CHI90CHI95
CHI00CHI03
-12,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
-30,0 -15,0 0,0 15,0 30,0 45,0 60,0
*Variables ortogonales a la tasa de dependencia demográfica y el grado de educación.
National savingsrate
(as a % of GDP)
PF Stock (as a % of GDP)
Observed/. Forcasted
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Pension Funds in Reformed Systems*
Source: FIAP
*Chile, Mexico, Colombia, Argentina and Peru
Million US$
Chile
Perú
Colombia
Argentina México0%
10%
20%
30%
40%
50%
60%
70%
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
0
50,000
100,000
150,000
200,000
250,000
1981
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
% GDP
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Real return during the 80s
(% annual average)
Source: Mesa Lago (1998), World Bank (1994)
-10
0
10
20
30
40
Ene-0
5
Jun-0
5
Nov-0
5
Abr-
06
Sep-0
6
Feb-0
7
Argentina Chile Colombia México PerúReturn-40
-30
-20
-10
0
10
20
Chile Mexico Ecuador Costa Rica Peru
Real return 2005-2007
(% annual average)
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OECD/IOPS Global Forum on Private Pensions
November 15th 2007
Beijing
Pension investment and capital market development
David Tuesta