Slim’s Pensioners Burned as Funds Sink to Bottom: Mexico CreditBen Bain and Jonathan J. Levin
The world’s richest man is proving better at generating wealth for himself than the 1.1 million Mexican pensioners investing with him.
While Carlos Slim’s personal wealth climbed 22 percent in 2012 to $75.2 billion, the funds controlled by his bank, Grupo Financiero Inbursa SAB, generated the worst returns for all four age groups in Mexico’s pension system in the 12 months through November. Inbursa’s funds posted average returns of 6.2 percent from the four categories, less than half the 13 percent industry average, as they kept as much as 64 percent of their money in government bills maturing in one year or less. Yields on one-year bills averaged 4.56 percent in 2012.
The strategy threatens to make Slim’s pension funds the worst in Mexico for the third time in four years. Regulators stripped the Inbursa funds of 10.7 billion pesos ($833 million) in February as part of a newly implemented review aimed at taking away money from the worst of the country’s 13 pension fund managers, known as Afores. Regulators are scheduled to redistribute some of the industry’s accounts again next year.
“They’re at the bottom of the pyramid,” Gabriel Casillas, the chief economist and head of research at Grupo Financiero Banorte SAB, said in a telephone interview from Villahermosa, Mexico. “They should rethink their strategy and do a better job if they’re going to continue in this business.”
Inbursa says it’s sticking with its approach and it expects to be vindicated when borrowing costs rise.
It also isn’t fair to compare one-year changes in Slim’s wealth with pension-fund returns because the fund is obligated to work within different guidelines, according to an e-mailed response from Marco Antonio Slim, the chairman of the group controlling the Afore Inbursa’s pensions and the second-oldest child of the world’s richest person. Slim’s son said the answers were prepared by members of the pension fund team.
“You’re comparing two totally different things,” he said in the e-mail. “When you compare returns, above all in very long-term pension funds, it doesn’t make sense to do so without accounting for risk. Clearly we’ve been living in a world of falling borrowing costs for the past few years. But that doesn’t mean that it’s going to be like that forever. For that very reason, we think it’s a good time for clients of other Afores to switch to Afore Inbursa and, thus, have a lower risk of losing part of their savings when rates change course.”
Inbursa’s fund for workers 37 to 45 years old hasn’t had less than 45 percent of its assets invested in short-term government bills known as Cetes since at least March 2008, according to data from pension regulator Consar. The most recent data is through November, with figures for December set to be released this month.
An official at Consar, who asked not to be named citing the organization’s policy, said that Pedro Ordorica, the head of the agency, wasn’t available to comment.
None of the funds from Slim, who owns about 54 percent of Inbursa, have more than 1 percent in longer-term peso debt, which Pacific Investment Management Co.’s Bill Gross says is one of his favorites. The yields on one-year Mexican Treasury bills fell just 0.1 percentage point in 2012, while those on the longest-term debt dropped 1.02 percentage points to 6.44 percent since it was sold in April as foreign investors pushed holdings to record levels.
Luis de la Cerda, the chief investment officer of Afore Sura, which had the best average return for the four age groups in the 12 months ended November, said that the bonds, known as Mbonos, were a focus of the funds’ investments. Sura’s funds averaged a 15.2 percent return in the past year.
“The bonds were definitely a great investment,” de la Cerda in a telephone interview from Mexico City. He said that Sura has about 21 percent of its 252 billion pesos in assets under management in Mbonos.
The average across Mexican Afores was 19.6 percent at the end of November, according to Consar data. Inbursa had about 97 billion pesos in assets under management at the end of November, according to the regulator.
While Inbursa was “wrong” to focus on shorter-maturity investments, the strategy could prove to be more profitable this year as President Enrique Pena Nieto seeks reforms to boost growth, according to Araceli Espinosa, a fixed-income strategist at the Mexican unit of Bank of Nova Scotia.
Investor optimism has been growing that Pena Nieto will make good on pledges to push through legislation to end state-owned Petroleos Mexicanos’s monopoly and lift tax revenue.
She said yields on bills will probably fall early this year as investors discount the passage of reforms, followed by an increase in volatility in longer-term bonds during the second half of the year as lawmakers consider the proposals.
Mexico will grow 3.5 percent next year and 3.85 percent in 2014, according to the median forecast in Bloomberg surveys. Inbursa says the nation’s growth prospects make long-dated bonds an unattractive investment.
“Thinking of buying Mbonos is equal to thinking that in the next 15, 20 or 30 years rates are going to be lower than they are today,” according to the e-mail from Marco Antonio Slim. “There would have to be a truly catastrophic scenario in which we see no growth over a long period for that to occur.”
The extra yield investors demand to own Mexican government dollar bonds instead of Treasuries decreased nine basis points to 147 basis points at 2:08 p.m. in New York, according to JPMorgan Chase & Co.
The cost to protect Mexican debt against non-payment for five years fell four basis points to 93 basis points. Credit-default swaps pay the buyer face value in exchange for the underlying securities or cash equivalent if the issuer fails to comply with debt agreements.
The peso gained 0.8 percent to 12.7828 per dollar today after rallying 8.4 percent in 2012.
Banorte’s Casillas, who isn’t directly involved in business decisions of the bank’s Afore, said that regulators are trying to encourage the nation’s pension managers to invest in longer-term assets.
While Inbursa “got it right back in 2008” when its short-term holdings allowed it to outperform during the financial crisis, Casillas says that Mexico is in a more fiscally sound position now and Inbursa should change its strategy accordingly.
“I haven’t seen an important change in behavior from the asset managers at Inbursa’s Afore,” Casillas said. “The incentives to do it are there.”