|Luis Gabriel Morcillo-Méndez||Alejandro León Quiroga|
Under Colombian regulations, pension fund administrators (PFAs) are subject to a strict investment regime, in order to protect the savings of pensioners and affiliated employees. Although PFAs are authorised to invest in foreign securities-related products, the PFA investment regime sets out various restrictions on the asset classes that are suitable for investments. PFAs must also comply with specific requirements to qualify as an admissible investment option.
Although the PFA investment regime adopts a conservative approach, recently enacted regulations have broadened the range of asset classes in which PFAs can invest. On May 6 2016, the Colombian Ministry of Finance issued Decree 765, which re-classifies alternative assets as an admissible investment option.
Colombian legislation now acknowledges that alternative assets can provide appropriate investment opportunities that guarantee the required investment returns to maintain the value of the savings entrusted to PFAs.
Decree 765 increases the maximum amount that PFAs can invest in securities-related products and a new global limit of 20% – or 25% for high risk funds – of the total assets under management was created. Securities-related products include: foreign collective investment schemes that invest in commodities and currencies; hedge funds or similar collective investment schemes with equivalent supervision and regulatory standards; and, collective investment schemes or funds that invest in real estate assets, such as real estate investment trusts (REITs).
In addition to the general requirements for foreign securities-related products, these alternative assets and their offshore managers must meet certain conditions to qualify as a suitable investment opportunity under the PFA regime. For example, they must have at least $100 million in assets under management and their financial statements must be audited on a yearly basis by an auditing firm with recognised expertise. Decree 765 also sets out the maximum exposure that a single PFA can have in each of these asset classes, and the concentration limits per investment product.
Decree 765 certainly widens the investment opportunities for Colombian PFAs, opening up new possibilities for portfolio diversification.
Luis Gabriel Morcillo-Méndez and Alejandro León Quiroga