BRAZIL - Brazilian pension funds may sell as much as 70bn reais ($39 billion) of government bonds after falling interest rates led regulators to lift limits on investing in non fixed-income assets, according to SulAmerica Investimentos.
The money likely will move into hedge funds, corporate bonds, stocks and private equity over the next three years, said Marcelo Mello, vice-president of Sao Paulo-based SulAmerica, a unit of insurer Sul America SA. Up to 42 billion reais may go to stocks to help the funds reach their annual return requirements of about 6 percent above inflation, according to Barclays Plc.
Record low interest rates are sapping returns for Brazil's 455 billion real pension fund industry as the yield on zero- coupon government bonds due in January tumbled to 8.74 percent from 14.79 percent a year ago. The drop prompted the national monetary council last week to allow funds to move entirely out of fixed income and raise the limit on equity assets to 70 percent from 50 percent.
"We're excited, but it's an enormous challenge because we have return requirements that are set," said Sylvio Murad Carolino dos Santos, finance director at Rio de Janeiro-based Eletros, the 2.3 billion real pension fund for workers of Brazil's biggest utility. "Interest rates are on their way down, whether they inch up in the short term or not."
Regulators also eased restrictions on buying structured- finance funds, hedge funds, international assets and real estate.
The Royal Society of Arts (RSA) has reignited the debate on the introduction of flat-rate pensions tax relief - saying a 30% flat rate would be progressive, cost-neutral and leave three-quarters of earners better off.
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