FUNDS ADMINISTRATION GIVEN BY THE SUPERINTENDENCY LICENSE AFP CONSTITUTION PUBLIC INTERNATIONAL BIDDING Competitive Transparency Eficiency AFP
Prudent Investment Criteria
WHO MANAGES THE SYSTEM? AFP
MANAGEMENT Individual Capitalization accounts and Collective Capitalization Fund managed by two private pension fund administrators (AFPs). COMPETITION IN THE MAYOR CITIES PLANNED FOR JANUARY 1º, 2000. La Paz Cochabamba Santa Cruz El Alto Initially these AFPs share the market in the four major cities of the country. and Have regional monopolies in their area of exclusivity . THE MARKET WILL OPEN TO NEW ENTRANTS. IN MAY 2002
Transaction in markets authorized by the regulatory framework and the Pensions Superintendency.
Only in securities authorized by the Pension Law or Supreme Decree issued by the Executive.
Diversification requirements through limits by categories of assets according to their risk rating.
Limits by issuer and groups of issuers.
Limits for foreign investments established by the board of directors of the Central Bank, between 10 % and 50 % of the ICF.
TRANSITION Reduces the net present value of the Government liabilities . Gives a clear signal about the commitment to the reform. Simplifies the process of reform. Is equitable among all sectors of the working population. Makes clear that the members are the owners of the resources in the system. THE OLD PENSION SYSTEM CLOSES COMPLETELY AT THE START OF THE NEW PENSION SYSTEM. BENEFITS THE NEW SYSTEM INCORPORATES ALL WORKERS, WITHOUT EXCEPTIONS FOR THE PRESIDENT, MILITARY, POLICE, OIL WORKERS, POLITICIANS, JUDICIARY ETC.
% of GDP US$ mn. (1996) FINANCING REQUIREMENTS ACTUAL FINANCING REQUIREMENTS YEAR 1990 1996 1997 1998 1999 2000 % OF GDP 0.7 2.1 3.2 3.6 3.7 4.3 PLANNED FINANCING REQUIREMENTS YEAR 1997 1998 1999 2000 2007 2027 2037 2.5 170 4.1 289 3.9 285 3.3 252 1.33 134 0.86 141 0.18 72
THE OBJECTIVES FOR THE BIDDING PROCESS WERE TO ATTRACT A LARGE NUMBER OF REPUTABLE AND EXPERIENCED PENSION FUND MANAGERS, TO CREATE A COMPETITIVE PROCESS AND TO SELECT THE BEST POSSIBLE AFPs. Asset Administration At least US$10 billion in assets under management, at least 20 years of portfolio management, and at least 10 years of experience as an international portfolio investor. THE MAIN CRITERIA TO QUALIFY WERE: SELECTION OF THE AFPs
Records administration and maintenance At least 100,000 accounts, and 5 million transactions a year. Experience in establishing new systems At least 100,000 clients that did not have previous experience with a retirement plan THE MAIN CRITERIA TO QUALIFY WERE: SELECTION OF THE AFPs
Two selected managers agreed to charge a remarkably low “average monthly management fee per account” of $2.37, that is equivalent to about 1% of the average affiliate’s salary (0.5% of worker’s salary and 0.228% of first US$1 bn. in assets, 0.014 of US$1 – 1.2 bn., 0.0067 of US$1.2 – 1.5 bn. ).
Securities Custody Commission of 0.2% of portfolio and trading costs are charged against the managed funds.
The two winning bidders, BBV and Argentaria have an exclusive concession until 2002.
Competition for the market instead of competition in the market resulting in competitive fees.
Capitalization and pension assets that the AFP manages are kept by a global custodian.
AFPs have 655,321 members (June 2001), of which 90% contribute, surpassing the targets set in the contract with the AFPs. Of the 614,600 fully validated accounts 229,605 are in the public sector and 355,605 in the private sector.
Process to transfer disability and survivorship insurance from AFPs to insurance companies has been launched and will be carried out through an international bidding process.
The Superintendency is operating and regulations are being issued and implemented.
The contract is what the companies are really bidding about. It is important to envision contingencies. In competition within the market there is more flexibility to address contingencies. In a bidding the country Is bound by the terms of the contract.
What happens when the contract comes to an end? How do you select the new managers?
Dispute resolution mechanisms.
THE CONTRACT Renegotiations: (i) minimum number of offices in each region of the country, (ii) target indicators and penalties if targets are not met, (iv) prohibition on merger with other AFPs or with any other entity not explicitly authorized by the Superintendent, (v) establishment of a benchmark for investment performance and (vi) a prohibition on delegating or entering into contractual obligations without the authorization of the superintendent. Required to sell one AFP when Argentaria and BBV merged in Spain