Peru's booming pension funds eye mortgages, ports
March 31, 2008 - Reuters

By Terry Wade

LIMA (Reuters) - Peru's swelling pension funds are helping to drive the fast-growing Andean economy and plan to invest billions of dollars into infrastructure and mortgage investments, a top fund director said on Monday.

Deposits in Peru's private pension fund industry, which was born little more than a decade ago, have been rising 20 percent a year and now total about $22 billion. They are equivalent to 21 percent of gross domestic product, and make up 75 percent of domestic savings.

"The vast majority of our money is invested in Peru, which is a very important volume for the economy," said Pedro Flecha, director of the BBVA's Horizonte pension fund in Peru and the president of Peru's association of pension funds.

Mining companies, the traditional engine of Peru's economy, soak up a quarter of all private pension fund investments, followed by government securities, energy, and telecommunications.

Increasingly, infrastructure projects will attract investment, Flecha said, as the government reforms rules to speed public concessions for construction companies and to approve investments for funds faster.

"We're ready to invest in infrastructure -- ports, tollways and airports. There's $30 billion in projects in the pipeline," said Flecha, who spoke at the Latin America Investment Summit in Lima.

The real estate market, which has been growing at a double-digit pace, is also expected to benefit from the recent formation of three companies set up to create a secondary mortgage market. Loan terms have been growing steadily, and already several companies have made loans for up to 30 years in the housing sector.

"Very soon, there will be a mortgage market and we'll all be buying," Flecha said of Peru's four big private pension funds. At the end of last year, only 1 percent of investments by the funds was in real estate, even though it was and remains one of the fastest growing sectors of the economy.

So far, the funds have had a hard time investing in real estate because they can only buy stocks, bonds or other securities. That leaves most real estate lending to banks. But the trend will soon change once a secondary mortgage market takes root.

"The construction boom would be even bigger if we were involved," he said.

Peruvians who work in the private sector are required to deposit about 13 percent of their monthly salaries with a pension fund, a rule that guarantees the sector will expand quickly.

Longer term, Flecha said the funds aim to invest less in the stock market, where they are big buyers, and emphasize infrastructure projects that create jobs more directly.

He said the majority of economically active Peruvians are not enrolled in pension funds and putting them on payrolls would boost the number of pension fund contributors.

"We want to be able to invest where we can create jobs and bring more people into the system," he said.

(Additional reporting by Ricardo Serra, editing by Leslie Gevirtz)