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Peru and Mexico set for international exposure

Peru and Mexico are being forecast as the next Latin American countries to open up to international fund managers. A report by research group Cerulli Associates claims the evolution of the pensions systems in the two countries points to a greater appetite for foreign equities, increasing the need for international managers.

Looking farther afield The pension systems of both Peru and Mexico are one-fund systems, investing only in domestic securities. Cerulli argues that as annual returns on domestic bonds fall short of the 8% to 10% that is required, and as local equities are volatile, international investment will become an "increasingly viable alternative".

Chile took the leap into international securities in 2002, when it converted its one-fund pension system into five risk-diversified sub-funds to cater for different maturity profiles. Thomas Ciampi, the report's author, believes Peru will follow suit by mid-2004, and Mexico in 2005. Both are expected to offer a three-fund system. And with insufficient stocks available in local markets, investors will be forced to look to foreign equities. Cerulli predicts that Brazilian pension funds will have as much as $20 billion invested in offshore assets in 2008, and Peru $4 billion.

But while many international managers will be tempted to muscle in on Mexico's asset management space because of the growth potential of pensions investments, Cerulli is pushing Chile as a more suitable market for the medium term.

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