Mexico’s largest pension fund expands alternatives portfolio

CIO Sergio Mendez Centeno details the improvements to Afore XXI Banorte's investment process

June 11, 2018

Afore XXI Banorte is the largest pension fund provider in Mexico – and it plans to maintain its pole position, with a strategy focused on three targets: transforming the customer experience, technological innovation, and redesigning the investment process. In the third of three interviews with XXI Banorte executives, CIO Sergio Mendez Centeno explains how the Afore is redesigning its investment process to align with international best practices, and expanding its alternative investments portfolio. The first two parts of this interview series with CEO Juan Manuel Valle Pereña explore XXI Banorte’s renewed customer experience and the technological innovations the Afore is bringing to market.

World Finance: Sergio, we’ve heard from Juan Manuel about the first two pillars [of your strategy]; how are you redesigning the investment process?

Sergio Mendez Centeno: The way that we’re redesigning the investment process is trying to bring to the local markets the international best practices that we have found in the administration of pension funds.

This means that we are dividing the investment division in three basic silos, which are portfolio management, analysts, and execution and traders.

World Finance: We spoke last time about creating your benchmark portfolio; how has this approach performed?

Sergio Mendez Centeno: The approach has been very, very successful, I would say. It’s something that’s an ongoing process all the time, because you know, regulations are adapting, and the markets are moving, so we have to adapt.

Even though at the end, it’s the light that guides us through the long-term that we are focusing our strategy all the time.

So the benchmark came as a result of our econometric process, in which what we did basically, we tried to approach the most optimal portfolios, given the restriction of the regulation and the investment horizon for our clients.

At the end, it reflects how we approach investments, and how is the way Afore XXI Banorte approaches the balance between returns and risks – which is at the end what creates the best product abroad.

World Finance: You’ve also been expanding your presence in alternative investments.

Sergio Mendez Centeno: That is correct. It’s an option that we need to use, because at the end, part of our fiduciary responsibility is the use of the investment regime fully. And that part of the portfolio – the alternatives portfolio – is something that is an opportunity. Not only about the returns, but about the duration of the portfolio. These kinds of strategies are longer duration than we can have in fixed income and different kinds of assets. And the returns have proven very, very good. So we have been very active.

At the same time the portfolio regulation started to allow us to invest in international alternatives. So that’s something that we have been very very active, trying to find who to partner with in order to approach these new assets. And at the end it’s something that will be reflected in better returns for our affiliates.

World Finance: And how else have you been growing and improving your investment process?

Sergio Mendez Centeno: That’s something that we are constantly improving, let me put it that way.

We are increasing our team on the public side of the portfolio, the equities side. I think it’s quite important to have complete analysis, and to have the full grip of the strategies that we have, deviating from the index of the Mexican bolsa, and trying to approach the best companies and the best returns.

At the same, we are still incrementing and trying to fully utilise our international exposure. And part of that is not only the using of ETFs; it’s also using actively the mandates. The separate managed accounts that we grant to different managers abroad in order to have best of breadth for international markets to our affiliates in the local markets.

And in the end, what we are trying to achieve is the best returns. So for that, and for the best returns, this year we work to obtain the authorisation to trade options, which is quite important. Because again, it’s another tool that we have in order to protect our portfolio against the only constant that we have in the markets: volatility.

World Finance: Sergio, thank you very much.

Sergio Mendez Centeno: Gracias, thank you.