Mexico's mandatory private pension funds continue to lack diversification, despite their pace of growth having outstripped economic growth in the country, Moody's said.
According to the rating agency's latest semiannual update, the Mexican pension fund system's assets under management expanded 11.3% year over year in the second quarter.
"The system's 10-year compound annual AUM growth rate was almost 14%, which is significantly higher than the 2% rate of growth of the Mexican economy over the same period," Moody's noted.
But even with that growth, there continues to be a lack of diversification, as "increased market volatility and relatively high interest rates have led to a concentration in safe-haven assets like government securities," the rating agency said.
In the second quarter, Mexican pension funds reported a year-over-year increase in their share in domestic government securities to 53.8% from 48.5%, which is more than the 52% average recorded in the last five years.
"This concentration is a risk relative to other mature pension systems that have more diversified portfolios by asset classes and geography (e.g. US, Canadian pension fund systems)," Moody's said.
However, the rating agency also believes that declining fund management fees and strong AUM concentration will lead to "some" consolidation.
