"There are not enough securities available to the pension funds in Peru – I think that they should definitely be allowed to diversify further. They need to do what Chile has done and increase the amount they invest in their neighbouring countries," says Walter Molano, head of research at BCP Securities.
The total pension savings pool in Peru is about $20 billion and contributions to the system are growing by 45% a year. This rate of growth is leading to a bubble in the stock market. The Lima stock exchange has surged by more than 1,000% over the past three years. "The rate of pension accumulation has caused the stock exchange to become distorted, which is concerning local and any potential international investors," says Molano. In Chile a similar problem occurred until the government relaxed restrictions on pension funds and allowed them to invest more abroad. Up to 40% of the Chilean pension portfolio can be invested in foreign assets, which contrasts with Peru’s limit of 10.5%.
These restrictions mean that pension fund managers are forced to focus largely on local equities. But the Lima exchange lists only a few companies and the pension funds are only able to invest in the most liquid of these, such as the mining companies Volcan, Southern Copper and Cerro Verde.