The private pension plan (PPP) market in Latin America is the region’s largest institutional client segment, with more than USD 900 billion in assets under management (AUM) at the end of 2020. And with projections forecasting AUM to reach USD 1.4 trillion by 2023, the PPPs are a reference point for smaller investors. Along with sovereign wealth funds (SWF), Latin America’s PPPs control a significant share of assets relative to GDP and thus can be very influential in the transition to sustainable investments, in turn helping meet the environmental urgencies and social demands confronting these societies.

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Evidence supporting the business case of ESG strategies continues to grow. A recent study by the Inter-American Development Bank’s (IDB) clearly demonstrated that sustainable investing does not come at a discount and can outperform traditional investments.[2] Additionally, they further diversify existing asset allocations.

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Given the initiatives led by the UN, NGOs, and regional development banks attempting to steer capital toward long-term sustainable outcomes, the time for asset managers’ participation is at hand, and as such they should continue working towards the harmonization of standards and further support these PPPs by tailoring strategies to create circular economies, providing value added services and developing strong knowledge transfer programs.

The Private Pension Plan System In Latin America And Its Problems

There are considerable differences across Latin America’s pension systems. The regulatory environment varies from country to country, and in some cases different private and public schemes co-exist together. All systems within the region include a combination of investments in local and foreign securities, including alternative investments. For instance, government bonds make up 80 percent of El Salvador’s private pension assets, contrasting to only 17 percent of Peru’s. Foreign investment makes up half of Peru’s pension plans while it is less than ten percent of El Salvador’s portfolio.

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