By late July 2015, Colombians had about 149 trillion pesos saved
in mandatory pensions, plus 13 trillion in voluntary pensions and
more than 9 trillion in severance funds. Some of these resources,
which are managed by pension fund administration firms, may now be
allocated to finance infrastructure projects in Colombia under
Public Private Partnerships ("PPPs").
This document briefly highlights the regulatory changes that
allow using the above resources to finance infrastructure
By means of Decree 1385 of June 22, 2015, the Ministry of
Finance amended Decree 2555 of 2010 as it relates to the investment
regime for mandatory pension and severance funds, insurance
companies and capitalization firms. The change aims at facilitating
the participation of institutional investors in the financing of
infrastructure projects undertaken in the form of PPP projects; it
focused on the requirements for investment in assets where the
issuer is a related company, and limits for investment in such
Qualification Requirements for Investment.
Decree 1385 amended the eligibility requirements for
admissibility of investments and changed aspects of the limits on
investment: it expressly states that investments will not be
admissible in private equity funds that invest in assets, shares
and securities where the issuer, acceptor, guarantor or owner is
the institutional investor, affiliate or subsidiary of same; or its
parent or affiliate or subsidiary thereof. There is an exception
for cases of private equity funds that allocate at least two-thirds
of their investors' contributions to infrastructure PPP
projects regulated under Law 1508 of 2012.
Notwithstanding the above, in order to ensure transparency of
the investments, these must be approved by the board of directors
of the institutional investor, which in turn must ensure that the
professional fund manager and investment committee members are
independent. In addition, the sum of the shares managed by the
institutional investor, belonging both to it and to its affiliates,
must be less than 50% of the fund's assets. The Financial
Superintendence of Colombia will oversee compliance of the
Limits on Investment.
Investments in securities where the issuer, acceptor, guarantor
or originator of a securitization is an entity linked to the
institutional investor cannot exceed 10% of the value of each the
types of mandatory pension fund. However, with the amendment
introduced by Decree 1385 of 2015, the calculation of this limit
will not take into account investments made by private equity funds
in assets, shares or securities issued or guaranteed by entities
related to the fund, when it assigns at least two-thirds of its
investors' contributions to infrastructure PPP projects.
To Keep in Mind.
The possibilities for financing fourth-generation (4G)
infrastructure projects have thus been expanded, and pension funds
have been allowed to diversify their portfolios to improve their
return on investments, which naturally results in a benefit to all
of their members.
Subject to compliance with the regulatory requirements to avoid
conflicts of interest, the changes introduced by Decree 1385 will
expand the range of investment possibilities for Mandatory Pension
Funds in a capital market like Colombia's, which is still
shallow. Additionally, it will provide the 4G concessions with
additional funding alternatives, which in an environment of
volatile interest rates and devaluation of the peso against the
dollar, may reduce the financing costs associated with these
projects by harnessing local funding sources.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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