Pension fund BAC San José to invest in foreign securities - Costa Rica
Costa Rican pension fund manager BAC San José Pensiones will take positions in foreign securities for the first time as part of its strategy to diversify its portfolio, CEO Javier Sancho told Business News Americas.

The company has set a four-phase strategy to invest in foreign securities which seeks to achieve higher profitability without increasing risk exposure, Sancho said.

During the first phase, BAC San José Pensiones will acquire US Treasury bonds as they are liquid and low-risk instruments, the executive said, adding the company is also considering buying the debt instruments of five corporations.

During the second phase, BAC will buy corporate bonds issued by international entities like the Inter-American Development Bank (IDB).

In the third phase - to be implemented in the first quarter of 2007 - BAC will take positions in index funds and during the fourth the company will acquire structured notes, according to Sancho.

The decision to invest abroad is mainly explained by two factors, he said. Firstly, Costa Rica's market used to be attractive in terms of returns but due to international interest rate rises, it is now even more attractive to invest abroad, Sancho said.

Secondly, the domestic market is not able to satisfy pension funds' demand anymore due to the volume of assets they manage.

Traditionally Costa Rican pension fund managers have exhibited strong home bias, especially towards government and central bank bonds.

The current pension law establishes that up to 50% of Costa Rican pension fund portfolios can be invested in local government and central bank bonds by 2011.

Costa Rican pension funds' investment rules have been liberalized, but are still highly conservative by international standards. Pension fund managers are permitted to invest up to 25% of their portfolio in foreign securities rated AAA, up to 15% in securities rated AA and up to 5% in securities rated A. They are not allowed to invest in equities.

At end-April, BAC San José Pensiones had US$54.4mn in assets under management, equivalent to a 3.9% market share.

BAC San José Pensiones is a wholly owned subsidiary of Costa Rican financial group Grupo Financiero BAC San José. The group forms part of Panama-based financial group BAC International Bank, which has operations in El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica, Panama and Mexico.