A $30 Billion Pension Battle Risks Exodus at Colombian Regulator

(Bloomberg) -- Colombia’s financial regulator is in turmoil after dozens of officials were asked to resign amid a dispute over whether to force pension funds to repatriate tens of billions of dollars from overseas. 

On Wednesday about 30 officials at the Finance’s Ministry’s Regulation Unit were asked to step down, according to a person with direct knowledge of the decision, who asked not to be named since the details aren’t public. The head of the unit, Mónica Higuera, quit last week. 

President Gustavo Petro has repeatedly criticized Colombia’s pension funds for investing about half of their $140 billion in assets abroad rather in the domestic economy. Earlier this year, the unit was asked to greenlight a regulatory change that would force the funds to repatriate about 125 trillion pesos ($33 billion) invested abroad. 

The plan, introduced by the nation’s financial watchdog Superintendencia Financiera initially proposed a five-year timeline for repatriating the assets. Finance Minister German Ávila then pushed for the shift to occur within just six months, the person said.  

The Financial Regulation Unit warned that inflows of this size could generate market, liquidity, and counterparty credit risks. It might also raise concerns about breaching contractual agreements with private equity funds, and could adversely affect investment returns for pension savers, the person said. 

Despite this, the government requested that work on the regulation continue, the person said.

Larisa Caruso, a former adviser to Avila at the finance ministry, was appointed as acting head of the unit after Higuera left.  

Caracol Radio first reported the officials being asked to tender their resignations.  

The press offices of the finance ministry and the financial regulation unit didn’t reply to requests for comment about advisors being asked to tender their resignations. 

The unit, whose board reviews and approves regulations for the financial system, is made up of representatives from the Finance Ministry and the financial watchdog. 

Some investors have warned that bringing back tens of billions of dollars over a short period could distort Colombia’s financial markets by creating artificial demand for local government peso bonds, or TES, and the currency. Private pension funds, including Grupo Aval’s Porvenir and SURA Asset Management’s Protección are the biggest players in this $186 billion market, owning nearly 30% of outstanding TES. 

Asofondos, the association representing private pension funds, argues that workers would ultimately bear the cost through losing some of the benefits of diversification in their investments. 

It is now unclear whether the government will proceed with the proposed regulation. 

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