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 Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.
The advent of collective pension systems could help the UK avoid demographic challenges which will make it "impossible" for society to help savers in retirement, experts say.