(Reuters) Colombia will soon allow pension funds to invest up to 20% of their assets in real estate, commodities, private equity, hedge funds and other alternative investments.
The decision, aimed at diversifying risk and bolstering profit, will modify previous rules that only allowed pension funds to invest in public debt and other low-risk portfolios. It is set to be announced by decree before the end of March, government and pension fund sources said.
The change, made in consultation with pension administrators, will allow for about $10 billion in fund resources to go toward alternative investments. As of November, pension funds controlled some COL$165.2tr (US$49.8 billion).
“The international experience has shown how pension fund administrators have looked for non-traditional investment possibilities, taking into account the need for long-term profit and deposit security,” the finance ministry said in a technical bulletin that forms part of the draft decree and was seen by Reuters.
“These instruments have served to diversify the risks that portfolios confront in the face of low international interest rates.”
Analysts said the current restrictions limited profitability.
Pension funds are the largest holders of Colombian public debt, with COL$56.3tr (US$16.9b) under management at the end of January.
The alternative funds will have to comply with rating requirements, asset limits and other conditions.
Last year the government allowed pension funds to invest in infrastructure projects to encourage interest in the so-called 4G road-building plan, which will require COL$50tr in financing. Pension funds will invest an estimated COL$11tr.