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Brazil pension funds seen holding off on infrastructure investments
January 13, 2017 / 2:57 PM / in 10 months

Brazil pension funds seen holding off on infrastructure investments

SAO PAULO (Reuters) - Brazilian pension funds are likely to hold off on investments in infrastructure projects until a new framework for financing and licensing is designed, a senior industry leader said on Friday.

In recent years, pension funds funneled part of the retirement money for workers in Brazil’s top state-controlled firms into infrastructure. Still, many of those investments lost money due to poor corporate governance and the impact of Brazil’s harshest-ever recession.

Pension funds might remain on the sidelines of infrastructure investing until the government and industry players agree on more flexible rules for financial guarantees, said Luís Ricardo Marcondes Martins, president of industry group Abrapp.

“Managers are way too wary because of what happened with a number of investment vehicles and projects,” he said.

Such concerns pose a challenge to President Michel Temer’s efforts to use infrastructure investment as a way to pull Brazil out of three years of recession. Last September, Temer launched a plan to sell operating rights for roads, airports, ports and railways.

The government has plans to launch a new concession program in March to bid on other roads, infrastructure, and oil and gas fields.

For a long time, investors have called on banks and the government to create mechanisms to cushion their money from sudden currency or interest-rate fluctuations, ensuring long-term financing for infrastructure projects.

The ability of state-controlled pension funds to pour money into infrastructure was hampered by a series of risky bets that went sour, as well as a sudden deterioration in corporate creditworthiness and capital markets activity in Latin America’s largest economy.

The federal police have launched a probe into investment practices at some of Brazil’s largest state-controlled pension funds, alleging overpricing of several investments led to a shortfall of 8 billion reais ($2.5 billion) in recent years. The funds include Previ Caixa de Previdencia Ltda [PREVI.UL], Petros Fundação Petrobras [PETROS.UL], Postalis and Funcef [FUNCEF.UL].

According to Martins, a combination of the highest borrowing costs in a decade and a stock market rally helped pension funds post their strongest returns in three years in 2016. The so-called actuarial rate of return for the industry averaged 14.86 percent last year, above a 13.44 percent target for the year, he said.

Pension funds in Brazil oversee about 800 billion reais ($250 billion) of worker retirment savings.

Editing by Guillermo Parra-Bernal and Chizu Nomiyama

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