The current investment regime of Colombian pension funds has a set strict regulations that, amongst others, establish considerable restrictions to the list of eligible assets and impose rigorous limits to the exposure of pension funds to such permitted investments. These regulations even include a profitability regime upon which local pension funds administrators are required to ensure that the funds they administer reach a minimum profit each year.
Whilst there have been several comments and discussions in the local industry regarding the need to increase the flexibility of pension funds’ investment regime and to adjust it to a more market friendly and modern approach, up until the end of last year there had not been any significant governmental initiatives to modify current regulations.
Indeed, since the publication of both the capital markets mission preliminary report on August 2019 and the mission’s final briefing on December 2019, the regulatory panorama on this issue seems to be near a change. Following these reports, the first sign of the upcoming legal modifications can be seen in the recently published 2020 regulatory agenda of the Regulatory Unit of the Minister of Finance and Public Credit (Unidad de Regulación Financiera), in which the URF has incorporated as part of the regulations requiring an update the rules applicable to the management of the pension fund’s portfolios; the first draft of the new decree is expected to be issued on October 2020.
Hopefully, the new regulations proposed by the URF will aim to restructure the current regime in order to achieve a more competitive and dynamic pension fund industry. It is also expected that these amendments will take into a count the suggestions made by the capital markets mission on this matter, including relevant matters such as: (i) the need to eliminate the minimum profitability regime of pension funds; (ii) the flexibilization of the existing regime for eligible assets and exposure limits; and (iii) the need to gradually reduce the investments of pension fund’s resources in entities economically related to the pension fund administrators.