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September 2013 Confidential – Not for release without prior written permission from the authors Copyright 2013 - all rights reserved to Campollo Consulting.

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Presentation on theme: "September 2013 Confidential – Not for release without prior written permission from the authors Copyright 2013 - all rights reserved to Campollo Consulting."— Presentation transcript:

1 September 2013 Confidential – Not for release without prior written permission from the authors Copyright all rights reserved to Campollo Consulting LLC & Wall’s Street Advisor Services LLC. Nothing in this presentation or the service it describes should be considered either legal or investment advice.

2 Latin America Pension Funds & Their Investment Portfolios Our Purpose today is to provide you with:  An overview of the funded pension systems of Latin America;  Features of their investment portfolios;  A look at what the near future may hold for these;  With a focus on the five ‘Major Markets’. 2 Campollo Consulting WSAS

3 The presentation draws from our Guide to Latin America Pension Funds 2013 TM service & related research  11 countries - all 10 with mandatory funded contribution plans + Brazil  400+ pension funds’ investment portfolios  $800+ bn. in assets (as of end-2012)  Country reports on investment portfolio regulations and industry developments 3 Campollo Consulting WSAS

4 LatAm Pension Funds’ Potential Latin America is quickly becoming a “strategic marketplace for money management ” – State Street Bank (Nov. 2011) …. WHY?  Have scale - Pension Funds’ assets at end-2012 nearly $810 bn.  Steady high growth - demographics (generally young populations) & national policies (promoting retirement funding) underlay growth prospects – AuM to grow over the next 5 years at about 15% p.a.  Opportunities for new financial products and services - surging contributions’ growth, prudential need for asset diversification, and regulators’ recognition of the virtues of diversification, in both domestic & foreign assets, are opening opportunities.  Pension Funds need more investment ‘space’ - Pensions’ investments in local stocks are approaching their ‘single issuer exposure limits’ – they are out-growing their home markets. 4 Campollo Consulting WSAS

5 LatAm Pension Funds’ Growth Potential - Relatively low Assets-to-GDP levels suggest great potential to grow - Double-digit compound annual growth rates projected to continue 5 Campollo Consulting WSAS

6 LatAm Pension Funds – Institutional Types 6 Campollo Consulting WSAS

7 Brazil’s Institutional System – The BIG Exception 7 First established in 1940s, Pension Plans are corporate, government, or multi-employer sponsored. Defined Benefit Plans (‘Plano Beneficio Definido’)dominate in terms of assets and affiliates. Variable Contribution (‘Plano Contribucao Variavel’) and Defined Contribution (‘Plano Contribucao Definida’) are fastest-growing types. Plans, particularly among related sponsors, frequently join a “Pension Fund” (‘Fundo de Pensao’), which provides investment and administrative services. Previ, the largest Brazilian Fundo de Pensao by total assets Campollo Consulting WSAS

8 The Multifondos Systems - Country examples 8 Chile introduced mandatory individual capitalized account funds in 1981 – options for affiliates among managers, but not for risk/return preferences A multifondos system gives pension affiliates an option among a series of risk-based funds offered by an investment manager (AFP) Each AFP provides a series of risk-based funds managed within the same detailed sets of investment requirements/restrictions Permitted maximum exposures to Equities & Foreign illustrate: Campollo Consulting WSAS

9 Pension Funds’ Assets by Country, Major and 6 Minor Markets 9 Campollo Consulting WSAS

10 Country shares’ of LatAm Pension Funds’ Total Assets, end Campollo Consulting WSAS

11 Pension Funds – Number by Country, Campollo Consulting WSAS

12 12 Latin America Pension Funds Overview of Asset Allocations end-2012 (%)

13 Top 25 Pension Funds – Total Assets 2012 US$ millions 13 Campollo Consulting WSAS

14 Top 25 Pension Funds- Fixed Income 2012 US$ mn 14 Campollo Consulting WSAS

15 15 Top 25 Pension Funds – Total Equities 2012 US$ millions Campollo Consulting WSAS

16 Brazil – Asset Allocations by Plan Types (Local Currency bn, end-2012) Defined Benefits Plans have the lion’s share (source: Abrapp) 16 Campollo Consulting WSAS

17 Brazil – Returns by Plan Types Campollo Consulting WSAS

18 Brazil –Consolidated Pension Portfolio Distribution US$ bn, end Campollo Consulting WSAS

19 Chile – Features of the Multifondos System Distribution of Assets by Fund Type, end Campollo Consulting WSAS

20 Chile – Features of the Multifondos System 20 Campollo Consulting WSAS

21 Chile – Features of the Multifondos System Real Returns by Fund Type - Note inverse risk/return results for Campollo Consulting WSAS

22 Colombia – Features of the Multifondos System Share of System Assets, end Campollo Consulting WSAS

23 Colombia – Features of the Multifondos System Portfolio Distribution by Fund type, end Campollo Consulting WSAS

24 Colombia – Features of the Multifondos System Returns by Fund type, end-2012 System just 2 years’ old by August 2013 Regulator permits publication of only rolling 48-month returns 24 Campollo Consulting WSAS

25 Mexico – Features of the Multifondos System Share of System Assets and Returns, end Campollo Consulting WSAS

26 Mexico – Features of the Multifondos System Portfolio Distribution by Fund type, end Campollo Consulting WSAS

27 Peru – Features of the Multifondos System Share of System Assets and Nominal Returns end Campollo Consulting WSAS

28 28 Peru – Features of the Multifondos System Portfolio Distribution by Asset & Fund type, end-2012 Campollo Consulting WSAS

29 LatAm Pension Funds & Alternative Assets – Permitted Exposures 29 Campollo Consulting WSAS

30 Typical Requirements for Qualifying Investments Summary of Typical Requirements for Qualifying Investments, e.g.:  Credit Ratings -Investment Grade  Risk Ratings  Qualified Investment Management Companies (Managers’ experience, operating histories, AuM minimums, others)  Exposure Limits by asset classes, instruments, issuers, management companies, currencies, 30 Campollo Consulting WSAS

31 LatAm Pension Fund Investment - Private Equity 31 Campollo Consulting WSAS

32 Brazil Domestic Institutional Investors surpassed Foreign Investors Commitments in PE in 2012 (Source: abvcap and KPMG) Campollo Consulting WSAS32 46% 49%51% 54% Total Investments 2011-R$11.8 bn 2012-R$14.9 bn

33 Campollo Consulting WSAS33 Brazil – Private Equity Total Investments by Sector (%) (Source: abvcap and KPMG)

34 Mexico - Evolution of the Investments in CKDs and FIBRAS CKDs + FIBRAs TOTAL US$6,829 mn Source: CONSAR April , ,141 3,292 1,325 1,130 3,841 2,949 2,826 2,481 2,402 2,312 1, ,663 1,588 1, ,658 4,977 4,342 2,683 2,726 2, ,369 2,045 1,218 1,350 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Agropecuaria Santa Genoveva Red de Carreteras de Occidente MACQUARIE W AMEX Capital Atlas Discovery México N A VIX Nexxus Capital IV General Partner PLA Inmuebles Industriales AMB Mexico Manager Infraestructura Institucional PROMECAP Artha Operadora MARHNOS V ertex Real Estate EMX Capital Capital Inmobiliario Grupo Inmobiliario MEXIGS 3 Fibra Uno Administración GRUPO MRP Credit Suisse Finsa Real Estate Managment Axis Capital Management Planigrupo Management L A TIN IDEA Grupo Bursatil Mexicano Northgate Capital Pine Bridge Fibra Hotelera Mexicana Macquarie México Real Estate Managment Asesor de Activos PRISMA PLA Administradora Industrial

35 Source: CONSAR. April Exchange rate: MXN/USD. * Capacity for CKDs and FIBRAS focused on infrastructure, housing and real estate: US$13,783 mn Capacity for CKDs focused on private equity and other projects: US$ 8239 mn ComplementarySavingsComplementarySavings 35 Complementa ry Savings Net Asset Total of Limit ConsumptionAvailableAvailable S1 S2 S3 S4 Total 137, ,52731,0765,02626, ,59345,4728,07737, ,99244,5197,89436,625 2,044,799121,06720,997100,070 Net Asset Total ofLimitTotal ofLimit ConsumptionAvailableAvailable S1 S2 S3 S4 Total 137, ,52762,15316,60345, ,59384,44723,75460, ,99282,67921,51461,165 2,044,799229,27961,871167,408 Mexico – There is plenty of room to invest in CKDs and FIBRAS

36 The challenges to the AFORE are to find relatively-secured and profitable projects and more sophisticated tools to analyze them. For CKDs and FIBRAS focused on infrastructure, housing and real estate For CKDs focused on private equity and others projects Source: Consar April Mexico – Losts of capacity vs Regulatory Limits

37 Instrument Source: Consar April Total Local Cy. mn AFORE Holdings CKDs 69, % FIBRAs100, % IPO109, % Mexico – Pensions’ Holdings in CKD and FIBRAS

38 Other Exposures to Alternative Investments  Brazil, Peru, Mexico – listed companies provide heavy exposure to many types of commodities (oil, precious & base metals, agricultural) and infrastructure assets (power, telecoms)  Colombia – Commodity funds and Commodity index-linked ETFs were almost 2% of total assets end-2012  Chile, Colombia – Emerging Stock Market exposures via ETFs represent almost half of all non-domestic stock market investments  Infrastructure (power generation, ports/airports)& Housing via Trust Fund bond issues – recent public-private project funding innovations in Uruguay, Costa Rica, Panama, Dominican Republic & El Salvador 38 Campollo Consulting WSAS

39 LatAm Pension Funds’ Portfolios – Current Trends  Greater permitted diversification among asset classes (especially to alternatives and foreign assets); AND  Growing actual investment in alternatives and foreign assets, as more attractive opportunities appear (domestic public-private infrastructure projects; domestic & foreign PE Fund options; rising foreign interest rates & improved foreign equities and currency outlooks). Remember – most LatAm currencies were appreciating vs. the USD throughout the 2000s; their domestic interest rates & yields were higher than foreign credits; and most foreign credit & risk ratings & stock markets were deteriorating, at least from Campollo Consulting WSAS

40 LatAm Pension Funds’ Systems A Look Forward  Brazil adding a Federal employees’ Variable DC plan – likely to be huge in a few years’ time;  Public demand for reduced costs and better returns/pension payouts by plan participants in mandatory DC plans likely to result in system changes;  Region’s good demographics for retirement assets accumulation and historically highly profitable asset management fees bringing in competition – new AFPs & owners (in Peru– AFP Habitat; Grupo Sura, Principal Financial Group, MetLife & Scotiabank to several markets 2013);  Possible Policy/Political Backlashes – Bolivia (abolition of AFPs underway), Chile (presidential elections ), Uruguay (‘opt- out’ option under discussions). 40 Campollo Consulting WSAS

41 Summing Up…. Funded PFs in LatAm are large, institutionally diverse, & manage increasingly diversified investment portfolios Investment barriers & buffers - are being loosened Strong favorable secular trends – region’s generally young demographics and trends to formalization of their economies ensures high levels of savings contributions & PFs’ asset growth new business opportunities & partnering - PFs’ growing asset diversification will require working with experienced money managers and financial service providers of all types = new business opportunities new competitors - Large & growing asset bases & high historical profitability by PFs’ asset administrators are attracting new multinational competitors (taking over existing AFP’s business, or as licensed start-ups), looking for new ways to do business Consumer dissatisfaction – Get ready for Change Affiliates frequently feel overcharged grossly and then have seen their ‘multifondo Agresivo’ returns well below that earned by the Conservador funds – for years, in some recent cases. Yet, the AFPs make good money. Mandatory participation and/or contributions systems are in question. Campollo Consulting WSAS41

42 To close, a little about us …  About Campollo Consulting LLC – Campollo Consulting LLC, a minority owned firm, was established by Carmen Campollo. Over the past 20 years Carmen has worked for firms such as the World Bank, International Finance Corporation, Standard & Poor's, FTSE and Russell Investments. In addition to the Guide to Latin America Pension Funds, Investment Context and Regulations, Campollo Consulting has developed a data base for 11 Latin American countries, including a 6 year history of asset allocation across 23 categories for over 400 pension funds. In addition Campollo Consulting created a methodology for manager searches, Fund of Funds, designed and developed indexed portfolios and financial investment products. You can learn more about Campollo Consulting at Contact us at ext or:  Wall’s Street Advisor Services LLC (WSAS) specializes in innovations in financial information services for investors and researchers interested in emerging markets and socially responsible investing. Founder and CEO Peter Wall has over 30 years’ experience in developing and marketing financial information services, with International Finance Corporation (IFC), FTSE International, and Microfinance Information Exchange, Inc. (MIX), as well as in his own capacity. Besides his contributions to The Guide to Latin America Pension Funds, he is the creator & compiler of the WSAS MFI Shareholder Value Index series. More can be seen about WSAS at The information and materials presented in this document have been prepared solely for informational purposes based upon information generally available to the public from sources believed to be reliable. The authors of this document disclaim any and all liability relating to these materials and make no express or implied representations or warranties concerning the accuracy or completeness of the document, the content of which may change without notice. Nothing in this document is intended to be or should be construed to be legal advice or investment advice. 42 Campollo Consulting WSAS

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