One of the most popular vehicles in the US for infrastructure investment is the master limited partnership (MLPs), which is very similar to the structure of CerPI and the Fibra E. The only difference between both vehicles is that CerPI will take on development risks associated with higher expected returns and the Fibras are more associated with stable infrastructure projects such as highway concessions. There will be a high capital allocation to infrastructure as part of Mexico’s National Infrastructure Program and this will also benefit CKDs and Fibras. Other strategic industries such as tourism need airports, water plants, highways, health institutions and so on. There is almost US$23.7 billion in capital from the Mexican pension funds targeting those projects. The Fibra regulation has certain fiscal benefits whereby if a portfolio is paid out with Real Estate Stock Certificates (CBFIs), private investors can defer their tax gains until they sell their CBFIs.

The rules for CKDs were much stricter years before, meaning Mexican pension funds had to prefund their full commitment. Today this prefunding commitment has been reduced to 20 percent with remaining capital calls more in line with international practices. In CKDs, a pension fund’s technical committee reviews projects that represent more than 5 percent of the fund’s commitments. In terms of Fibras, we saw an opportunity to create a Mexican Real Estate Investment Trust (REIT). Previously, anybody who wanted to invest in real estate typically had to go and physically buy property and then lease this to a third party with all the management burdens that come with that. This new vehicle was designed to allow for a range of international and domestic institutional and retail investors to participate in the real estate market, delegating the management responsibilities to professional fund managers.

CerPIs are were designed by CNBV and the Ministry of Finance to focus on the development of large greenfield infrastructure projects, including energy assets. S&P Global believes these instruments will not only be attractive to a broad range of international and local investors, but also pension funds and insurance companies whose needs are long term. Another instrument that will boost energy infrastructure development is the Fibra E, which was floated on the Mexican Stock Exchange (BMV) in October 2015. Fibra E will incorporate activities related to hydrocarbons, energy and infrastructure assets. Along with its subsidiaries, they are “pass through” entities for tax purposes and there are tax shields that enable a substantial portion of distributions to be exempt. It will also offer entities like PEMEX and CFE an option for monetizing existing assets to focus on new opportunities. Fibra E is intended to capitalize on the value of mature assets that are already generating flows within the infrastructure industry.

The authorities used an existing structure to get around the legislation that prevents pension funds in Mexico from investing in private vehicles. A CKD is a publicly traded vehicle that never trades. At the moment, CKDs are a work in progress, both for the pension funds and the authorities. Since the original instrument was formed, it has improved in leaps and bounds. I think CerPIs provide a solid input, the only issue being the establishment of an instrument that is attractive to both managers and investors. With CerPIs, the government has tried to create a more negotiable document since the participation of investors in the technical committee is more static. With CKDs, a 10 percent share automatically allows the investor a seat on the technical committee, whereas this is not the case with CerPIs. Nevertheless, this system is open to negotiation and no-one is precluded from having a seat on the committee.