Mexico's Pension Fund Industry Sees Profit Rebound In 2009

Mexico's pension fund companies more than doubled their net profit in 2009 to a record level as the recovery in financial markets led to a big jump in assets under management, benefiting commissions.

The pension industry's net profit rose to 4.89 billion pesos ($385.5 million) from MXN2.32 billion in 2008, according to preliminary data posted on the Web site of pension fund regulator Consar.

Revenues jumped 22% to MXN19.05 billion last year. Costs and expenses rose a more modest 6.8% to MXN14.17 billion.

Return on equity, a measure of profitability, rose to nearly 21% from 11.6% in 2008, according to calculations by Dow Jones Newswires.

Earnings in the sector had fallen to an eight-year low MXN2.28 billion in 2007 as a result of increasing competition and pressure on the industry by Consar and Congress.

Rules favoring account transfers and new entrants saw the number of pension fund companies, known as Afores, peak at 21 in 2007, up from 11 at the end of 2002. That fueled a price war, and higher spending on advertising and client retention schemes.

A regulatory overhaul of the system that went into effect in early 2008 abolished commissions on retirement contributions and forced pension fund managers to charge a single commission on assets under management. Account transfers were also limited.

The new regulations benefited larger pension funds and were a key factor driving sector consolidation.

Four of the smallest Afores sold their assets to larger rivals and shut their doors last year, reducing the number of private sector players in the market to 14.

International firms including Citigroup Inc. (C), Spain's Banco Bilbao Vizcaya Argentaria SA (BBVA), ING Groep NV (ING) and Principal Financial Group Inc. (PFG) control some of the country's biggest pension funds.

Mexico adopted a mandatory retirement savings system in 1997 for salaried private-sector workers based on individual retirement accounts managed by Afores, which replaced the defined-benefits system of the state-run social security agency IMSS.

Individual accounts were later extended to the self-employed on a voluntary basis, while the retirement savings of government employees joined the system under state-run pension manager Pensionissste.

The Afores and Pensionissste rank as the country's largest institutional investors.

Total assets under management surged 22.8% year-on-year to a record MXN1.151 trillion at the end of December thanks to contributions and a global rally in financial markets during most of 2009.

-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177; ken.parks@dowjones.com

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