BRASILIA, Oct 7 (Reuters) - Brazil’s largest pension funds face a couple of difficult years because a lengthy recession will stoke redemptions and outpace contributions by a large margin, an industry leader said on Wednesday.
Average profitability in the industry is likely to end this year around 8.7 percent, well below the targeted actuarial rate of return, or minimum expected return on investments, of 15.94 percent, said José Ribeiro Pena Neto, president of Abrapp, the group that represents pension funds.
Brazil’s economy, the largest in Latin America, shrank over the past couple of quarters and is slated to contract this year and next, the country’s first back-to-back annual retractions since the 1930s. Households across Brazil are tapping their savings as accelerating inflation and rising unemployment are weighing down their finances.
“The outlook is particularly worrisome for the next two to three years,” Pena Neto told reporters in Brasilia.
Some of Brazil’s top funds are taking a defensive investment approach as domestic markets slumped in the light of erratic economic policy decisions. Some funds, especially those running money for state workers, have also been saddled with enormous losses in the wake of ill-timed investment decisions.
Behind the miss in actuarial returns is the flagging performance of equities in Brazil, Pena Neto said. Over the past 10 years, pension funds returned 214 percent, compared with the targeted return of 197 percent.
Fundação Cesp, Brazil’s No. 4 pension fund by assets, will likely miss its self-imposed target rate of return for this year because of the rout in domestic markets, a tumbling currency and rising borrowing costs, Chief Investment Officer Jorge Simino said in September. (Reporting by Aluísio Alves; Editing by Guillermo Parra-Bernal and Grant McCool)