Amafore, the Mexican pension fund industry association, announced recently that all Mexican pension fund managers (Afores) have agreed to invest only in local instruments in the coming year in an attempt to help ameliorate the ongoing deterioration of the country’s economy. The Afores also reportedly agreed to prioritize investment in sectors with a strong relationship with employment, including housing construction and state and municipal projects.

The agreement has raised some questions as to whether such an investment strategy is consistent with the firm’s obligations to pensioners, given its lack of geographic diversification. This concern has been exacerbated by predictions that the Mexican economy will contract by between 1.9% (central bank survey of private economists) and 5.0% (Morgan Stanley) in the coming year. Nonetheless, despite some initial reservations from certain Afores, the agreement reportedly includes all pension fund managers in Mexico.

As of the end of February 2009, the Afores had US $61.9 billion under management, with local subsidiaries of three foreign companies (Citi, BBVA and ING) managing more than half of the nation’s pension fund assets.

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