Pension funds eye $200 stake in private equity

Mexico’s pension funds will take a $200 million stake in a fund that invests in private equity, people involved in the deal said, as the risk-shy funds search for bigger returns.

Roughly half of the country’s private pension funds, known as Afores, will be involved in the transaction that should be listed on the Mexican stock exchange in the coming days, said Luis Alberto Harvey, managing director of Nexxus Capital, which will receive the funding.

“We have everybody lined up,” he told Reuters on Thursday at a conference hosted by Latin Finance. “We are waiting for a couple Afores to pass their final committees. That is why I can’t give the exact amount.”

The private equity stake was structured by Merrill Lynch (BAC.N) and will be listed on the Mexican stock exchange, although pension funds are the only investors.

“The sweet spot has been offerings in the $100 (million) to $200 million range,” said Emilio Mahuad, a managing director at Merrill Lynch, who is helping shepherd private-equity funds such as Nexxus Capital to the Afores.

FUNDS REACH FOR RETURN

Mexico’s private pension funds manage about $85 billion in assets — mostly government debt and low-risk corporate bonds. The funds’ regulator has recently allowed them to expand their holdings and that should mean more capital for private equity, said Leonardo Pin Fernandez, chief investment officer of MetLife Mexico.

“There are already 30 more such investments in the pipeline,” he said about the new securities designed for the Afores.

Fund managers say that Credit Suisse, Santander and Bancomer are among the banks most active in structuring new securities and bringing them to the Afores in regular investor road shows.

“The offering rhythm is very intense. We are seeing probably two or three projects per week,” said Enrique Solorzano, director of investments for ING bank’s Afore.

The Afores may invest roughly 8 percent of their assets in structured products such as private equity investments and the 14 funds are likely to expand those holdings to 1 percent this year, said Mahuad.

In a separate move last week, the Afore regulator said it would relax investment rules to give fund managers more freedom to confront market volatility and buy more Mexican stocks.

The new rules will allow the funds to buy limited amounts of any individual stock listed on the Mexican exchange and give funds more flexibility to manage their stock and debt holdings.

OBSTACLES STILL EXIST

The new market-traded investment class, called CKDs, require private equity funds to reveal details of their business just like any other company listed on the exchange. Those disclosure standards set by the Afore regulator might turn off private equity funds that value their secrecy, said Diego Serebrisky managing director of Advent International.

“To gain the benefit of being listed you have to give up all that information,” he said, noting that companies at the private equity stage of development might want to guard their business plans from competitors

Reuters

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Pension funds eye $200 stake in private equity

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