Aniceto Huerta
Director of Fundamental Risk
Afore Citibanamex
View from the Top

Young Affiliate Base Spurs Long-Term Investment

Wed, 11/01/2017 - 12:03

Q: What role do Afores play in bridging Mexico’s infrastructure gap and what sectors are the most attractive for investment?

A: The infrastructure sector is key for Afores. On average, the affiliates of Mexican Afores are in their early 40s, meaning that they will keep saving for more than 20 years. Our objective is to increase our exposure to long-term assets that provide stable cash flows. One of the most advantageous features about infrastructure investments is that they are normally linked to inflation, meaning that employee pensions are better protected against spikes in inflation. With a track record below 10 years, CKDs in Mexico are a relatively new asset class that has become a priority in our investment portfolio. Afore Citibanamex is the largest Afore, measured in number of affiliates, and the most active in the alternative investment field in Mexico. Due to existing regulations, all investments we carry out in private infrastructure are through CKDs. At the moment, there are fewer than 10 infrastructure CKD managers in the country and we proactively invest and work with most of them. For instance, in 2015 we structured a vehicle together with Canadian pension fund Caisse de Dépôt et Placement du Québec (CDPQ) in order to better access more opportunities in the infrastructure field.

Q: What subsectors within the infrastructure industry are attractive for investment?

A: We are actively pursuing opportunities in virtually every type of infrastructure class: transport (roads, rail, ports and airports), energy and power (oil and gas, upstream, midstream, downstream and clean energy) and social infrastructure, such as health and education. In the renewable-energy sector, last year’s clean-energy auctions were a success. Actually, Mexico now has one of the lowest clean energy prices in the world, which is excellent for the country’s economic development. Mexico has been able to provide a stable regulatory framework and long-term PPPs of up to 20 years, which has attracted many international investors. If the country has foreign investors placing their money in these long-term projects, it is a show of faith in the country’s future development. We invested in projects in the first and second auctions and we will continue allocating investment in auctions to come.

Q: What are the main differences between CKDs over Fibra E and CerPIs?

A: The current regulation limits Afore’s investments in private infrastructure projects to CKDs, CerPIs or Fibra E. Fibras pertain to projects that are already in operation, generating a stable cash flow. CKDs and CerPIs are similar in the sense that they are optimal for the development of new projects. The main difference between a CKD and a CerPI is that CerPIs require a 30 percent co-investment from the sponsor or a national or international co-investor. Governance also changes between CKDs and CerPIs since Afores have more direct participation in the former whereas CerPIs rely more on the credentials and experience of the co-investor. As of June 2017, there has only been one CerPI issued in the market, where the co-investor was Ivanhoé Cambridge, a subsidiary of CDPQ focused on the real estate sector. In 2016, Fibra Via was the first Fibra E issued in the market, designed to hold stabilized assets. Its main asset is the Mexico-Toluca toll road, which provides a longterm and relatively predictable cash flow to its investors. Through Fibra E, Afore investments are not subject to taxes, meaning that all the income generated by the operation of the investment flows directly to the Afore’s affiliates.

Q: How will financial tools be used in 2018 and what characteristics does Afore Citibanamex look for when choosing managers?

A: 2015 and 2016 saw the greatest number of CKD issuances in Mexico, especially in the real estate and infrastructure sectors. We have seen few Fibra Es in the market because they require a consolidated portfolio of large assets. It takes time to optimize the structure and make it appealing for investors. In 2Q17, we expect to see much more activity in the Fibra E pipeline. Afore Citibanamex seeks managers with ample experience, a positive track record and credentials