Mexico pensions eye $600 mln private equity stakes

* Three private equity funds on the block in coming weeks

* Offerings total over $600 million, mostly in real estate

* Eight more private equity funds in near-term pipeline

By Patrick Rucker

MEXICO CITY, July 26 (BestGrowthStock) – Mexico’s private pension
funds are set to invest up to $600 million in three private
equity deals in the coming weeks, as they stock up on riskier
assets that promise bigger yields, market sources said.

The private equity funds will bankroll warehouses,
distribution centers, and other industrial real estate projects
that promise higher returns than the much safer bonds that make
up the bulk of the pension funds’ holdings.

The new investments will also help achieve an objective of
Mexican President Felipe Calderon, who has said he hopes the
cash-rich pension funds, known as Afores, will spur
infrastructure development.

“We are long-term investors with a large amount of money
so, yes, we are going to invest more and more in these
securities,” said Andres Hammar, director of the HSBC’s pension
and insurance business in Mexico.

Mexico’s 14 Afores may allocate 8 percent of their nearly
$100 billion in assets to “capital development certificates,”
which regulators conceived as a way for the pensions to make
private equity bets.

Using those new securities, Mexican pensions have dipped
their toe into riskier investments such as the $268 million
combined stake seven pensions took in an infrastructure fund
conceived by Macquarie Group (MQG.AX: ) earlier this year.

The Afores purchased about $1 billion worth of those
securities in 2009, and they are on pace to expand those
holdings by more than $1 billion this year.

Hammar did not comment on near-term deals but said he
expects HSBC, which operates one of Mexico’s smaller Afores,
will invest in at least two such projects this year.

The three private equity funds seeking investors include
two backed by leaders in global real estate investing —
Prudential Financial Inc. (PRU.N: ) and AMB Property Corp (AMB.N: )
— as well as a home-grown infrastructure fund, Promecap, said
three industry sources familiar with the deal.

Promecap, founded by airport magnate Fernando Chico Pardo,
is seeking an investment of 2.5 billion pesos ($197 million),
while Prudential wants to raise 2 billion pesos ($157 million),
the sources said.

“We are just sorting out a few final details,” said
Promecap general director Federico Chavez, who did not comment
on specifics. “We are very close to a final filing.”

AMB hopes to close on a 3.3 billion peso ($260 million)
offering according to a prospectus filed earlier this month.

Promecap and AMB could be placed as soon as this week while
the Prudential deal could be done by early August, an industry
source said. While several Afore private equity deals have been
in the $125 million to $225 million range, a finance source
said the Prudential deal could be closer to $240 million.

“We believe renewed activity within a recovering global
manufacturing sector will lead to increased demand for
industrial space in Mexico,” Prudential Real Estate Investors
said in a statement.

EMX Capital, a private equity fund that has focused on
businesses that reach Mexico’s growing middle class, has also
been welcomed by several Afores and could sell a stake to the
pensions in the coming months, industry sources said.

Dozens more private equity funds are making their pitch to
the Afores, but only seven of those have been reviewed by
Boston Consulting Group and are in the near-term pipeline, the
sources said.

Mexico’s private pension system was created 13 years ago,
and the retirement accounts are stuffed with roughly 80 percent
government bonds and debt from corporations considered to be
safe for investors, especially compared to its peers.

Its conservative investment profile helped it weather the
recent financial crisis.

While Chilean pension funds whipsawed with a 25 percent
decline in 2008 and a 20 percent rebound in 2009, Mexican
pension funds were virtually flat in 2008 and recorded a 14
percent increase last year.

Still, Calderon’s government and the Afore regulator have
encouraged the pensions to expand their holdings of more
aggressive securities so that they can meet the needs of future
retirees.

Investment

($1 = 12.73 Mexican pesos)

(Reporting by Patrick Rucker; Editing by Paul Simao)

Mexico pensions eye $600 mln private equity stakes