Institutional investors in Latin America

240 Pages·2000·3.023 MB·English

by  OECD

«
Institutional
Investors
in Latin America
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OECD Proceedings
Institutional Investors
in Latin America
PUBLISHER’S NOTE
The views expressed are those of the authors
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FOREWORD
Over the past few decades the number of institutional investors has grown
dramatically in advanced market economies and, more recently, Latin America
as well, largely influenced by the development of private pension systems in the
region. The experience in advanced market economies suggests that the
investment activities of institutional investors will have a significant impact on
the development of financial markets of these countries.
The OECD Centre for Co-operation with Non-Members (CCNM) and the
Commission of the European Union organised, in co-operation with the
government of Chile, a workshop on “Institutional Investors in Latin America”.
The workshop took place in Santiago in September 1999, with the participation
of policy-makers, academics and private sector representatives of 15 Latin
American and OECD countries. Participants assessed the current state of
development of institutional investors in Latin America and examined how
Latin America and OECD countries might benefit from each other’s experience
in broadening the role of institutional investors.
Many of the discussions signalled a risk of tension between choice and
competition objectives on the one hand and prudential and protective objectives
on the other. Regulations and constraints that sought to protect investors,
consumers and workers also have the potential to hamper competition in the
institutional investor sector. Choice and competition can entail certain benefits
for these individuals by offering a wider selection of financial instruments with
different risk-return characteristics, lower commissions, and greater control over
firms’ corporate governance, and hence, over returns to financial assets. Yet,
competition can have a downside. For example, consumers in Latin America are
paying higher fees as pension fund administrators devote significant resources
to advertising, marketing campaigns and sales forces.
This publication, prepared by the Directorate for Financial, Fiscal and
Enterprise Affairs, brings together selected papers by experts who attended the
Santiago meeting. Part I assesses the current state of the institutional sector in
Latin America while part II examines OECD policy experience in the area of
institutional investors. Part III contains the conference proceedings
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This publication should stimulate further debate and assist the formulation of
policy priorities for the growth of institutional savings in Latin America. The
views expressed are the sole responsibility of the authors. They do not reflect
the views of the OECD or those of its Member countries. This book is published
on the responsibility of the Secretary-General of the OECD.
Eric Burgeat
Director
Centre for Co-operation with Non-Members
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TABLE OF CONTENTS
Introduction
by Carmen Villegas-Caballero........................................................................................9
The institutional sector in Latin America: Assessment, experience, comparison......10
The institutional sector in the OECD area: Lessons for policymakers.......................13
The regulatory and supervisory framework and the financial infrastructure..............16
Opportunities for growth of the institutional sector in Latin America:
A policy challenge...................................................................................................19
Part I
INSTITUTIONAL INVESTORS IN LATIN AMERICA: RECENT TRENDS
AND REGULATORY CHALLENGES
Institutional Investors in Latin America: Recent Trends and Regulatory Challenges
by Juan Yermo..............................................................................................................23
Overview of institutional investors............................................................................25
The development of the regulatory and supervisory framework................................28
Pension funds.............................................................................................................29
Insurance companies..................................................................................................52
Investment companies................................................................................................68
Main regulatory and supervisory challenges..............................................................75
The role of institutional investors as holders of financial assets..............................103
Conclusion...............................................................................................................112
Individual Savings and Capitalisation Regimes: The Latin American Experience
by Pedro Corona Bozzo...............................................................................................121
The crisis faced by the public pay-as-you-go systems around the world.................121
Effects of the crisis...................................................................................................122
Pension systems in Latin America...........................................................................123
Pension fund investment..........................................................................................124
The International Federation of Pension Fund Managers........................................127
Challenges................................................................................................................127
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Pension Funds in Latin America: Features and Limits
by Aldo Simonetti.......................................................................................................129
Features of pension funds.........................................................................................129
Factors limiting the development of pension funds in Latin America,
and some suggested solutions...............................................................................135
The Regulation of Investments in Latin American Defined-Contribution Public
Pension Schemes
by Fernando Solís-Soberón..........................................................................................139
Introduction..............................................................................................................139
Pension systems.......................................................................................................140
Public pension schemes in Latin America...............................................................144
Investment regulations for pension funds................................................................147
Investment regulations of pension funds in Latin America......................................150
An assessment of the costs of quantitative restrictions in Mexico...........................153
Conclusions..............................................................................................................158
Regulation and Current Situation of Pension Fund Investments in Peru
by Augusto Mouchard.................................................................................................163
Features of the private pension system.....................................................................163
Regulation of the industry........................................................................................164
Pension fund managers............................................................................................165
The situation regarding investments.........................................................................166
Challenges for the future..........................................................................................170
Final considerations.................................................................................................171
The Regulation of Life Insurance Policies in Chile
by Mónica Cáceres......................................................................................................173
A brief overview of institutional investors...............................................................173
Regulation................................................................................................................175
Development of the life-insurance market...............................................................179
Challenges and final comments................................................................................182
Brazil : Emerging Economy, Submerging Social Security
by Eduardo Bom Angelo.............................................................................................185
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Part II
THE INSTITUTIONAL SECTOR IN THE OECD
Overview of Institutional Investors in OECD Countries
by Stephen Lumpkin...................................................................................................195
Growth of institutional investors in OECD Countries..............................................195
Forces shaping the role, structure, and modus operandi
of institutional investors........................................................................................198
Investment strategies and portfolio composition......................................................199
Impact of institutional investors on the financial landscape.....................................204
Regulation and supervision of the institutional sector..............................................205
The Institutional Sector in the OECD: Policy Lessons
by Glorianne Stromberg..............................................................................................209
New Approaches to Regulatory and Supervisory Strategies....................................213
Enhance efforts to reduce the knowledge gap..........................................................213
Match the regulatory structure to the reality of the market place.............................214
Adopt new regulatory strategies that match market-place reality............................214
Make systemic changes in the regulatory system.....................................................215
Simplify, modernise and harmonise basic laws.......................................................215
Increase focus on governance matters......................................................................216
Increase focus on international regulatory co-operation..........................................216
Establish regulatory and supervisory oversight training programs..........................216
Establish supervisory oversight training programs for the private sector................217
Enhance compliance and enforcement activity........................................................217
Access to Latin American Markets for Individual Canadian Investors
by Andrew Scipio Del Campo.....................................................................................221
Part III
SUMMARY OF CONCLUSIONS BY THE OECD SECRETARIAT
The institutional sector in Latin America – Assessment,
experience, comparison........................................................................................226
The institutional sector in the OECD: Lessons for policies.....................................230
The regulatory and supervisory framework and the financial infrastructure............232
Opportunities and policy challenges for the growth
of the institutional sector in Latin America..........................................................236
Annex I List of Participants.................................................................................241
Annex II Agenda of the Workshop.......................................................................245
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INTRODUCTION
by
Carmen Villegas-Caballero*
The OECD/EU workshop on Institutional Investors in Latin America assessed
the current state of development of institutional investors in Latin America,
both as providers of financial services and as holders of financial assets. Prior to
the onset of the Asian crisis in 1997, the growth rate of assets under
management by domestic institutions had been fairly strong in many Latin
American countries, in some cases comparable to or even exceeding those in
advanced market economies. For most countries in the region, however, the
institutional investors sector does not yet have the same bearing on overall
financial market activity as its counterparts in more advanced market
economies. A number of factors explain this discrepancy, including the fact
that, in some countries, the relevant legal and regulatory frameworks have been
created only recently. Accordingly, as an additional objective, the workshop
tried to identify any remaining obstacles to the further growth and development
of the institutional sector in participating countries and suggested policies to
address the problems, including ways to improve the financial infrastructure.
The project built upon previous work on this topic, especially the OECD
horizontal projects on Institutional Investors and Capital Market Development
in Transition Economies. It moved the discussion forward by bringing together
policymakers and private-sector representatives from both Latin America and
the OECD area. The following is an introduction to the various issues that were
discussed during the workshop. It is divided into four sections, coinciding with
the four main sessions of the workshop. A summary of the various
presentations and the conclusions from the workshop are contained in Part III of
this publication.

* Consultant, OECD.
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