In the midst of the tension surrounding the pension debate in Colombia, a new announcement from the Government set off alarms in the financial system; after the director of the Financial Regulation Unit (URF), Mónica Higuera, confirmed that in the coming days a draft decree will be published for comments that seeks to private pension funds allocate a greater proportion of their resources to the local market.
The measure, apparently technical, has a strong political and economic background; since, as Higuera explained during the Congress of Asofiduciaries, last week, the document will be published for comments, despite the fact that it has already The presidential line has been drawn and its goal, according to them, is that the workers’ money is invested in the country.
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It should be noted that President Gustavo Petro himself had anticipated this months ago, when he stated that “half of workers’ pension savings are outside the country, and that must be changed” and noted that in his opinion, Colombians’ resources should be channeled towards productive projects within the national territory, since keeping them abroad “reduces the possibilities of internal investment.”
A bet with more risks than benefits
Behind the argument of “nationalizing” pension savings there is an idea apparently simple, which consists of bringing back the resources that today are invested in stocks, bonds and funds abroad to allocate them to local financing. However, analysts consulted by Portafolio warn that technical evidence suggests that this strategy could end up affecting the value of pensions, the stability of the financial market and investor confidence.
Private funds warned that a change of this type is not convenient for this country.
Image from ChatGPT
One of the first to react was the Colombian Association of Pension and Severance Funds (Asofondos), whose president, Andrés Velasco, recalled that the resources of more than 19 million members are invested following the principles of diversification and profitability required by law and that the results speak for themselves.
This union noted that from August 2022 to September of last year, the funds recorded annual returns between 12% and 17%, far exceeding inflation and local returns and that together, workers’ savings have generated $370 billion in accumulated profits. since the creation of the system, which is equivalent to 71% of the total assets managed.
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“These results would not have been obtained if regulations had required forced investments in Colombia in the last ten years,” said Velasco, who exemplified what could happen if the rules of the game were changed, saying that “one million pesos invested a decade ago in a moderate portfolio today would be worth $2.3 million, while if it had been invested only in local assets it would be worth $1.4 million, that is, a reduction of 37% in worker savings.”
The value of diversification
For experts, diversifying investments is the best way to protect pension savings facing the risks inherent to an economy like the Colombian one. Not in vain, theories were mentioned that propose that distributing assets in different markets and currencies reduces risk exposure without sacrificing profitability.
Private funds warned that a change of this type is not convenient for this country.
Image from ChatGPT
That is precisely the practice of the most successful systems in the world, since the large pension funds of Canada, the United Kingdom, Australia and New Zealand keep more than 60% of their portfolios invested abroad. In contrast, countries that imposed severe restrictions, such as Zimbabwe or Ghana, have suffered significant losses and a deterioration in confidence in their systems.
In the Colombian case, Asofondos clarifies that Colombia continues to be the main investment destination of the funds, and that the increase in external investments is due, above all, to the appreciation of the international assets and the effect of the exchange rate, not a capital flight.
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In 2024, for example, investments in external shares grew 42%, but only 9 points are explained by new purchases; The rest (33 points) is due to the increase in the value of those assets in pesos. In other words, 78% of the growth was due to appreciation, not a deliberate decision to move money abroad.
Risks of forced repatriation
This is why if the Government decides to impose stricter limits, the consequences could be felt immediately. For example, economist Andrés Moreno Jaramillo warns that this dynamic would directly affect the value of savings; since “there would be a sharp fall in the dollar and a rise in local assets, but that reduces the expected returns. We would be buying more expensively and concentrating all the risk in Colombia. If the country does poorly, pensions will also be affected.”
Private funds warned that a change of this type is not convenient for this country.
Image from ChatGPT
This analyst explained that the massive return of investments would generate downward pressure on the dollar, appreciating the peso and making exports more expensive, while the prices of local bonds and stocks could be artificially inflated, reducing future returns.
Added to this are other collateral effects such as greater vulnerability to external shocks, lower exchange rate coverage, transaction costs due to the forced sale of international assets, and even inflationary pressures derived from excess liquidity in the local market.
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“This is crazy,” summarizes the analyst; who is clear in saying that “less diversification, lower profitability, increased risk and loss of trust. It’s shooting yourself in the foot. “Saving is still saving, wherever you are.”
Another critic of the government’s approach is Julio César Iglesias, from the organization No Con Mi Ahorro, who questions the idea that investing abroad means “taking” the country’s resources, noting that “if you have savings in pesos or in a dollar account, they are still yours. Just because they are outside of Colombia does not stop them from being savings.”
Private funds warned that a change of this type is not convenient for this country.
Image from ChatGPT
In his opinion, Petro’s argument is based on an erroneous equivalence between geographical location and economic security, while noting that workers already take enough risks by living and investing in Colombia and that “it is prudent that a part of their savings does not depend on politics or the local economy.”
As an example, he cites the case of the Norwegian sovereign fund, which invests 100% of its resources outside its territory, in more than 9,000 companies in 63 countries. “This fund, which exceeds a trillion dollars, demonstrates that global diversification is not a flight, but a responsible investment strategy.”
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Thus, it is enough to say that for now, the draft decree that regulates AFP investments has not yet been discussed and that, for certain, the only thing that is known is that the proposal seeks to reconcile the political intention of the president with the technical and legal limits of the financial system.
Meanwhile, the country is still waiting for the official text of the decree; since its content will define whether Colombia opts for a savings policy closed on itself or if it continues to defend diversification as a pillar of the future well-being of millions of workers; just before it is known what will happen with the pension reform.
DANIEL HERNÁNDEZ NARANJO
Portfolio Journalist
