Probe of Petrobras Turns to Pension Fund

Brazil

An investigation into corruption at Petrobras, Brazil’s state-run oil company, has taken a new turn: investigators are now looking into the company’s pension fund, although details are unknown.

From Reuters:

Brazil’s state-run oil company Petrobras on Monday said a growing corruption scandal may implicate its employee pension fund and has led to a freeze on payments to 23 contractors allegedly involved in the scheme.

Petros, the 66 billion real ($24 billion) employee-pension fund of Petroleo Brasileiro SA, as Petrobras is formally known, was singled out by an internal investigation, Petrobras said in a statement.

The law firms that are conducting the internal investigation “have found possible links to the facts that have been investigated” regarding the pension fund, according to the statement.

It did not give details of any possible links.

The investigation was launched after Brazilian prosecutors alleged that Petrobras executives conspired with construction companies to inflate the cost of contracts and then kick back proceeds to executives, politicians and political parties as bribes and campaign contributions.

Last month, Petrobras was fined by Brazil’s security regulator for violating rules regarding the election of board members of Brazilian companies in which the pension fund is invested.

U.S. Anticipates Influx of Latin American Pension Investments

Globe

Latin America’s pension funds are looking to invest beyond their borders, and that means billions of dollars of pension investments flowing into the U.S., according to new projections from research firm Cerulli Associates.

Latin American countries have seen major growth in retirement assets in recent years as more workers are subject to mandatory retirement contributions. Such countries – Brazil, Peru, Chile, Columbia and others – are now looking to invest those assets abroad.

More from Benefits Pro:

Latin American pension funds are expected to double their allocation to international and U.S.-based funds over the next five years, according to an analysis from Cerulli Associates.

So-called cross-border allocations from Latin American pension and mutual funds will exceed $350 billion by 2018, the Boston-based research firm projected.

That should be welcome news to U.S.-based fund companies that have been seeking to expand their business in Latin American markets, which tend to be restrictive when it comes to giving their plan participants access to U.S. equities.

Most mutual fund markets in Latin America invest less than 5 percent of total assets abroad. Cerulli attributes this in part to investors’ bias to their home markets.

Regulations also stand in the way, though they differ by country, with some Latin American governments allowing greater access to foreign markets than others.

U.S. fund managers have hoped for greater penetration into Latin America, but progress in developing key markets has been slow, according to Cerulli.

That said, opportunities exist, and may be opening up. Mandatory worker contributions into private pension systems in Chile, Mexico, Columbia and Peru continue to support growth of retirement assets in those countries, and Cerulli notes that pension regulators are showing a greater intent to open their borders to foreign investments.

Some countries are more willing than others to invest outside their borders.

Chile, for example, has already shown enthusiasm for such a strategy; as of 2013, 42.4 percent of its pension assets were invested in foreign countries.

Argentina Default Devastates Pensions of Brazilian Mailmen

640px-Argentina_Logo

Argentina’s failure to pay interest on its debt—resulting in the country’s second default in 13 years—was always going to have an economic ripple effect.

But Brazilian mailmen probably didn’t realize they’d be near the top the list of negatively affected parties. In light of Argentina’s default, they’ve seen their pensions zapped.

That’s because Postalis, the pension manager to which about 130,000 active and retired Brazilian postal workers belong, is feeling the pain of the default.

Postalis was invested in the fund Brasil Sovereign II Fundo de Investimento de Divida Externa, a Brazil-based investment fund of Bank of New York Mellon, that this week wrote down its assets by 51 percent, according to Bloomberg:

Bank of New York Mellon Corp. said one of its Brazil-based investment funds wrote down more than half the value of its assets after recording losses on investments linked to Argentine government debt.

The Brasil Sovereign II Fundo de Investimento de Divida Externa FIDEX took a loss of 197.9 million reais ($87.2 million) on Aug. 1 after booking a provision on credit-linked notes tied to Argentine bonds, according to a regulatory filing yesterday by BNY Mellon DTVM, the bank’s Brazilian fund manager. The fund has just one investor and the identity is not public information, according to securities regulators.

Argentina last week failed to make a $539 million interest payment on its bonds, prompting Standard & Poor’s and Fitch Ratings to declare the country in default for the second time since 2001. The country has about $29 billion of overseas foreign-currency notes outstanding, and the International Swaps & Derivatives Association ruled last week that the failure to pay interest will trigger $1 billion of credit-default swaps.

“Due to the suspension of payment on foreign debt notes issued by Argentina backing the referred notes, and to the necessity to change its evaluation methodology of some credit-linked notes, provisions for losses have been made in its portfolio,” BNY Mellon DTVM said.

The fund that held the notes had 384.4 million reais worth of assets as of July 31, according to data available at the website of the Brazilian securities regulator. The value dropped about 52 percent to 185.5 million reais as of Aug. 1.

You’ll notice in the excerpt above that the fund has only one investor, the identity of which isn’t public information. But it’s widely believed that investor is Postalis. From Businessweek:

While the statement didn’t identify the entity that is the fund’s sole investor, all signs point to Postalis, the pension manager serving about 130,000 current and former postal workers in Brazil.

Postalis, which had 8 billion reais ($3.5 billion) in assets according to the latest data available, said in statements as early as 2011 and as recently as May that it had invested in the fund. Postalis’s press office declined to comment.

Postalis is Brazil’s 14th-biggest pension group by investments under management, according to June 2013 data available from the Brazilian pension association Abrapp.

Brazil’s pension regulator was asked by multiple media outlets to comment on the situation, but has so far declined all requests.

 

Photo: “Argentina Logo” by Guillermo Brea. Licensed under Creative Commons