PERU - The Central Reserve Bank of Peru has increased the limit of foreign investments by private pension funds from 10.5% to 12%, although it could rise as high as 20% in the future.
Bank president Julio Velarde announced the 1.5% increase as part of the bank's monetary programme, which will be approved in December 2007.
But Velarde added the bank could authorise a gradual increase up to 20%. "I think it is indispensable for risk diversification. The main purpose of the private pension funds is to guarantee a decent pension," he said.
The limit increase came as welcome news for the private pension funds or Administradoras Privadas de Fondos de Pensiones (AFPs). Congress had approved a 20% limit on foreign investments but this could not be exercised by the AFPs until the central bank came on board.
Considering pension funds in Peru are growing at a faster rate than the local market, the international diversification factor plays an important role in the sustainability of the system.
It will not only contribute to reducing the volatility of portfolios and improving the risk/return profiles but will also protect the local market against the formation of asset class bubbles.
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