The retirement savings system came into effect in Mexico in the mid-1990s. During this period, the retirement fund administrators (Afore) were created to better manage the savings of Mexico’s working class. The Afore invest the public’s funds in specialised retirement fund investment companies (Siefore) with the objective of obtaining competitive returns, ensuring the financing of a dignified pension for each worker, and guaranteeing the sustainability of the system.
During the last decade from 2009 to 2019, the value of the assets under management (AUMs) of Mexico’s pensions management system went up from 1.1 billion pesos to 3.7 billion pesos representing 15.5 percent of Mexico’s nominal GDP. These figures stand testament to the fact that the pensions reforms were a success. It was in this context that Afore Profuturo entered the retirement savings scene. A pioneer in the Mexican savings system with complete focus on Mexico, it is the only retirement savings manager that offers its services in three different fields: Afore, pensions, and loans.
Afore Profuturo, a part of leading Mexican group Grupo BAL, is among the top three leading fund administrators in the country, managing a capital of around $28 billion. It is also the only Mexican retirement fund to survive the pension reforms of 1997. Over the years, Afore Profuturo has become a leading retirement fund in Mexico through organic growth and numerous acquisitions. Since its inception, Afore Profuturo has been offering the most competitive returns in the sector. Afore Profuturo’s dominance in the market is evidence that its funds are outperforming most others in the long run.
Over the years, Afore Profuturo has stood out in the Mexican market, not only for offering higher returns but also for managing approximately 15 percent of the gross savings of Mexico’s working class.
Preparing for yet another reform
Currently, a reform of the Mexican pension system is being discussed to adopt the generational funds framework, which is already being implemented by some developed economies. With around $14.5 trillion in the market, the new structure will strengthen the investment system and provide a robust operating framework. The new structure, which will come into effect by the end of the year, will confirm Afore Profuturo as a top fund manager in Mexico.
With the objectives of improving Mexico’s pension system and adopting guidelines that will position Afore Profuturo as one of the most important pension funds in the world, it has formed alliances with global institutions. In two of Afore Profuturo’s major projects – the creation of the new generational funds – target date funds (TDFs) – and the diversification of alternative investments outside of Mexico, the company has worked closely with global experts to incorporate their inputs and guarantee the success of these projects. Afore Profuturo is also creating 10 target-date funds – one of them called ‘Initial’ and another one ‘Basic Pension Siefore’. There are eight basic generational Siefores with five-year age groups.
Global alternative investment alliances and options
While Vanguard, one of the world’s largest investment companies with 30 million investors, is exclusively advising Afore Profuturo with the creation of a glidepath, experts such as Spruceview Capital Partners, a US-based investment management company, and StepStone are advising the company on issues related to global private equity investments. These alliances not only provide access to different markets, but also distinguish Afore Profuturo from its competitors in the domestic market. This strategy helps Afore Profuturo diversify, break away from its main portfolio exposures, and increase returns without incurring additional risks while also reducing the overall risks of these portfolios. So far, Afore Profuturo has invested in sectors such as energy and tourism and in the US and Europe.
Ultimately, Spruceview Capital Partners and StepStone’s vast experience and their successful track record convinced Afore Profuturo that these two firms could provide the requisite support and guidance, and the company ventured into the alternative investment market.
Afore Profuturo chose these firms with a broad and deep network that can give it access to the best funds and support Afore Profuturo in developing direct contacts with the most prestigious global funds. Similarly, Afore Profuturo chose Vanguard after a due diligence process to oversee its transition process by using its demographic data for portfolios and its capital market assumptions (CMA) for each asset class.
Vanguard’s model seeks to build a consistent and objective retirement investment framework, based on the characteristics of Afore Profuturo population, that strikes the right balance between investment risks and expected rewards through retirement. The alternative investment markets Afore Profuturo seeks to tap are the US, Europe, and Asia, especially the developed markets. With the help of its allies, Afore Profuturo is determined to penetrate these markets with the best possible strategy and better risk-performance profile.
Afore Profuturo’s investment strategy
With a team of experts led by CIO Antonio Sibaja, Afore Profuturo makes sure that it invests in accordance with the established guidelines and in compliance with regulations, maintaining its strategic mission – ensuring Mexicans can save for their future.
Similarly, the integration of technology has helped Afore Profuturo enhance its multi-asset strategy. It was the first administrator in Mexico to incorporate the Findur system, a world-class, end-to-end platform that facilitates control and recording of operations, transactions, and accounting processes into management process.
In 2018, the Findur system helped Afore Profuturo win the 4TIC Prize from the National Chamber of the Electronic, Telecommunications and Information Technology Industry (Canieti), in the category Intersectoral Impulse 4.0. All the nominees in the category were evaluated not only on the basis of their contribution to productivity in the sector, but also on the basis of their contribution to the development of the country.
In the last two years, Morningstar, a company that carries out independent analysis of investment companies across different countries, has rated Afore Profuturo’s performance as positive. Morningstar’s analysis highlights that Afore Profuturo possesses one of the most robust investment teams in the sector and it has the ability to identify new investment opportunities and to adapt to the constant changes in the market.
Earlier in the month of September, Afore Profuturo became a signatory of the Principles of Responsible Investment (PRI), joining a list of global investors to contribute to the development of a more sustainable global financial system. It is also a member of Mexico’s Green Finance Advisory Board (CCFV).
Wealth management of global standards
With the support of Grupo BAL, Afore Profuturo also manages the wealth of many Mexican families. It always seeks to provide the best possible services while maintaining global standards when it comes to ethics, transparency, and social responsibility. Afore Profuturo’s motto is to increase the profitability of the assets it manages.
In this regard, CEO Arturo García says, “In Mexico, Afore constitute a major pillar for the investment and infrastructure development of the country. Afore Profuturo is a pioneering institution in the sector and is recognised in the field as a very solid company consisting of professionals in all its departments, and that has the backing of BAL Group.” One of the most important fundamental pillars under which Afore Profuturo operates is the commitment to provide the best services without compromising with quality. Afore Profuturo has strengthened its investment processes by adopting innovative techniques with a focus on asset allocation while keeping in mind three simple points:
- Goal: Achieve competitive and stable returns with results based on replicable processes.
- Risk tolerance: Achieve results within a specific framework of tolerance and risk control.
- Best practices and technological innovation: Align operations with international best practices and incorporate technological innovation to improve results.
Profuturo’s role in mitigating Mexico’s pension challenges
One of the main challenges faced by the Mexican pension system is the low replacement rate, which is estimated to be around 30 percent. To tackle the issue, Afore Profuturo has raised various campaigns highlighting the importance to save for retirement. One of Afore Profuturo’s advertising campaigns this year was themed – it’s time to believe in savings—which aims to improve the replacement rate in Mexico.
The Mexican pension system is a defined contribution programme in which savings depends on factors such as the rate of savings, years of contribution, and age of retirement. The low replacement rate in Mexico is not expected to improve due to the factors such as the existence of a large informal sector in the economy, lower-income, lack of voluntary savings, and also the lack of financial knowledge among its people.
In order to improve the situation in Mexico, Afore Profuturo is working on a research report and will soon present it to the government. It is also sponsoring financial education programmes such as Profukids, in which kids who excel academically receive a prize in their retirement account. Another programme called ‘Dialogues for the future’ aims to inspire young Mexicans to think about their future and understand the importance of savings and also create innovative solutions for their needs.