El Salvador may be the smallest country in Central America – it has a population of just 6.4 million, according to the World Bank’s latest estimates – but its economy continues to show huge potential. Across 2018, GDP growth was measured at 2.5 percent, and its GDP per capita totalled $4,058. What’s more, pension funds, which make up 44 percent of El Salvador’s GDP, have registered a compound annual growth rate of more than 10 percent over the past 20 years.
At the heart of this success is AFP Confía, a subsidiary of the Atlántida Financial Group. Founded in 1998, the company manages pension savings and retirement benefits for more than 1.5 million employees and retirees across El Salvador. And with $6bn in assets under management – over $2bn of which is made up of cumulative returns – AFP Confía is the largest pension fund in Central America and the Caribbean, according to data published by the financial newspaper Moneda. In fact, AFP Confía paid over $250m in retirement benefits in 2018 alone.
Since launching, AFP Confía has been the largest pension fund (with the biggest monthly contributions) in the region and remains a market leader in almost every key indicator. We are keen to maintain this leading position moving forward.
Financing the future
Having played an active role in El Salvador’s pension system for the past 20 years, one thing has become clear to us: change is never far away. Armed with this knowledge, we have been able to navigate shifts in regulatory standards and customer expectations while continuing to lead the market. Strengthening performance, attracting new customers, reaching organisational goals and generating positive returns are just a few of the aims we have set ourselves during this period. Innovation, efficiency and a highly motivated team are some of the core reasons for our success.
Our investment team, which comprises young – but experienced – individuals who focus on achieving good investment returns and better pensions for our clients, has been pioneering investments in Central American markets since the day we opened our doors. Over the decades, this team has driven the regionalisation of our portfolios through investments totalling $500m in Costa Rica and Panama, including quasi-sovereign bonds, airports, petrol refineries, banking, communications and utilities.
Our portfolios are invested in fixed-income securities and are always grounded in robust research. What’s more, we’ve supported the economic development of El Salvador and other Central American markets by financing a wide variety of industries, such as municipal infrastructure, highway expansion and maintenance, agriculture, airport and port expansions, electricity projects, water utilities, sovereign debt, real estate investment trusts and bank securities. Our cumulative return over the past 36 months was 4.61 percent – the highest in the local pension fund system, according to a report published by the Salvadoran regulator, the Superintendencia del Sistema Financiero, in September 2019.
Adapt and thrive
As a result of our forward-thinking approach, we were able to adapt our core operating systems and investment strategies before the domestic pension system underwent significant reform in 2017. After years of debate, this much-needed reform was approved by the Legislative Assembly of El Salvador and received an actuarial validation by Mercer, the world’s largest investment consulting firm.
The 2017 pension reform increased mandatory contribution rates, issued a new fully funded longevity guarantee, set out a gradual increase in the retirement age and improved investment regulation. For the first time, the reform also allowed pension funds to directly invest up to 20 percent of total assets under management in international mutual funds and exchange-traded funds. For AFP Confía, this amounts to approximately $1.2bn.
As a way of anticipating future change, we remain focused on proven process management strategies like Six Sigma and new tools such as biometric identification and artificial intelligence (AI). We have supported these frameworks through a complete re-engineering of our processes and ensured that all of our business operations are focused on driving efficiencies, increasing savings and delivering best practices across the company.
With these strategies in place, we can guarantee that our clients are always our primary focus, keeping them abreast of the latest developments and remaining in direct communication as much as possible. To achieve this, we are using data analytics and machine learning to improve the services we offer, as well as implementing new channels of communication via AI and other cutting-edge technology to get closer to our clients and resolve their problems remotely.
Such tools will help us raise awareness of the pensions system, demonstrate how savings are invested and highlight the importance of savings in El Salvador. After all, it’s only with the continued support of our shareholders and the leadership of our clients that we will be able to anticipate and adapt to market changes long into the future.