Colombia’s Proteccion to Invest in Private Equity (Update2)

March 9 (Bloomberg) -- Proteccion SA, Colombia’s second- biggest pension fund, plans to invest 2.4 trillion pesos ($1.3 billion) in private equity in the next two years after reaching the government-set limit on stocks.

Proteccion will boost private equity holdings to 10 percent of its 24 trillion pesos in assets by 2012 from less than 1 percent today, Juan Luis Escobar, the fund’s chief financial officer, said in an interview from his office in Medellin yesterday. Proteccion plans to stop buying stocks after they grew to 40 percent of its holdings, the maximum allowed, following a 53 percent gain for Colombia’s IGBC Index last year.

Colombian pension funds are boosting private equity investments to take advantage of a surge in government infrastructure spending aimed at helping pull the South American country out of its first recession in a decade. Buyout funds from Darby Overseas Investments Ltd and Brookfield Asset Management Inc. are moving into the country and the government said a year ago that it would set up a $500 million fund.

“We can’t buy more stocks, so private equity is the most exciting thing right now,” said Escobar, 45. “We are looking at infrastructure funds that invest in highways, water treatment, waste and airports.”

Proteccion plans to spend half its private equity money on international funds and use the rest for Colombia-focused investments, Escobar said.

Economic Recovery

Central bankers say the economy is recovering and they predict it will expand as much as 3 percent in 2010. Last year’s recession followed six years of growth that averaged 5.3 percent as President Alvaro Uribe’s success in curbing violence and pushing back drug-funded rebels attracted almost $50 billion in foreign direct investment since he took office in 2002.

The central bank will raise its overnight lending rate to 5 percent by year-end from a record low of 3.5 percent to prevent growth from fueling faster inflation, according to the weighted average of six economists’ forecasts in a Bloomberg survey.

Pension funds are moving into private equity after driving up stock prices, said Eric Conrads, a hedge fund manager at Mexico City-based Armada Capital SA and former chief investment officer for Chile’s AFP Santa Maria pension fund. The IGBC Index has climbed 83 percent from a two-year low in October 2008, pushing its valuation to 27.5 times the reported earnings of its companies, the highest in Latin America, according to data compiled by Bloomberg. The index fell 0.4 percent to 11,852.19.

‘Very Expensive’

“Colombia’s biggest stocks have gotten very expensive,” said Conrads.

While price-to-earnings ratios in other countries may be cheaper, Escobar said pension funds prefer to buy Colombian shares because of their familiarity with the companies.

Proteccion can keep its current stock investments even if a rally pushes their value to more than 40 percent of its assets because the fund can exceed the regulatory limit based on price appreciation for two years, Escobar said.

Legislation approved by Congress last year will probably ease the rules on buying shares, he said. Neighboring Brazil pared restrictions on pension funds in 2009, boosting the limit on non-fixed income investments to 70 percent from 50 percent.

Proteccion, which is listed on the Bogota exchange, fell 2 percent to 49,500 pesos on March 5, the last time it traded. The stock is down 14 percent this year after climbing 66 percent in 2009. The shares have traded on fewer than 10 days this year.

Darby Overseas Investments, the private equity unit of San Mateo, California-based Franklin Resources Inc., plans to raise $300 million over the next year for a fund that will focus on investing in Colombian infrastructure, according to fund chief Jorge Castellanos. Toronto-based Brookfield Asset Management set up a $400 million infrastructure fund and Bogota-based Nexus Capital Partners SA raised $54 million at the end of last year for an infrastructure private equity fund.

To contact the reporters on this story: Alexander Ragir in Medellin at aragir@bloomberg.net; Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net