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Mexico

On November 29 2002 the Mexican government published new regulations applicable to institutional investment funds (afores) (Consar 15-8). These regulations are a result of new government policies towards promoting the growth of the institutional investment industry.

The new regulations distinguish between two types of institutional investments funds: basic investment funds, and voluntary contributions investment funds. The basic investment funds are those with the primary function of managing the mandatory savings and contributions from employees, whereas voluntary contributions investment funds are intended for non-mandatory savings.

The rules also broadened the definition of securities in which these funds were able to invest (instrumentos), to allow them to buy debt securities from public or private issuers denominated in foreign currency.

These funds must invest resources only in authorized securities, derivatives and bank deposits. They may also execute repurchase or loan agreements (as lenders) under pre-authorized guidelines issued by the Mexican Central Bank, and must also follow the following investments parameters:

Up to 100% of a fund's total assets can be invested in debt instruments issued or guaranteed by the Mexican federal government or the Mexican Central Bank.

Up to 100% of a fund's total assets can be invested in debt instruments issued by investment grade private enterprises denominated in Mexican currency or investment units (unidades de inversión) with guaranteed returns of at least equal to or greater than the yield of investments units or the national consumer price index (if issued by an entity other than the Mexican federal government or Mexican Central Bank, and instruments issued, accepted or guaranteed by a financial or credit institution with a credit rating of F1+, MX-1, AAA, MxA-1+, or mxAAA).

Up to 35% of a fund's total assets can be invested in debt instruments issued by investment grade private enterprises denominated in Mexican currency or investment units (unidades de inversión) with guaranteed returns of at least equal to or greater than the yield of investments units or the national consumer price index (if issued by an entity other than the Mexican federal government or Mexican Central Bank, and instruments issued, accepted or guaranteed by a financial or credit institution with a credit rating of F1, MX-2, AA+, AA, AA-, MxAA+, MxAA, or mxAA-).

Up to 5% of a fund's total assets can be invested in debt instruments issued by investment grade private enterprises denominated in Mexican currency or investment units (unidades de inversión) with guaranteed returns of at least equal to or greater than the yield of investments units or the national consumer price index (if issued by an entity other than the Mexican federal government or Mexican Central Bank, and instruments issued, accepted or guaranteed by a financial or credit institution with a credit rating of F2, MX-3, A+, A1.mx, A, A2.mx, A-, A3.mx, mxA+, mxA, or mxA-).

With respect to debt instruments issued, accepted or guaranteed by financial or credit institutions, a fund's investment can never be, in aggregate, higher than 10% of its total assets taking into account those investments made under the criteria detailed above.

Investment in debt instruments denominated in US dollars, euros and yen, may only make up 10% of a fund's total assets, and only with respect to those instruments registered in the National Securities Registry.

Investment funds that do buy foreign denominated securities will have to maintain a maximum risk factor of 0.60% on their total assets. The methodology for the calculation of the risk factor its included as Exhibit F to this regulation (Consar 15-8).

In addition, these funds will also have to follow the following diversification guidelines:

The investment in debt instruments issued, accepted or guaranteed by the same issuer must not exceed 5% of a fund's total assets (and may be lower depending on the credit rating of the issuer).

The investment in debt instruments issued, accepted or guaranteed by an entity related to the managing company of the fund must not exceed 15% of its total assets.

The investment in debt instruments of the same issuance cannot exceed 20% of the total value of the issuance itself, except if such instruments were issued, accepted or guaranteed by a credit institution (other than participation certificates).

The following investments are expressly prohibited for these funds:

  • instruments issued, accepted or guaranteed by financial or credit institutions that are subject to any type of receivership or intervention;
  • any subordinated instruments, regardless of the issuer; and
  • instruments convertible into equity.

Alberto J Morales

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