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Colombia’s Largest Pension Fund Seeks Safety in the Dollar

(Bloomberg) -- Colombia’s biggest pension fund is seeking refuge in the dollar as the global outlook worsens and President Gustavo Petro’s proposed reforms threaten to undermine growth.

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Leonardo Mila, chief strategist at Porvenir SA, which oversees about 180 trillion pesos ($37 billion), said the dollar has been key to diversifying its holdings away from riskier assets, including the nation’s peso-denominated bonds known as TES.

“Amid the confluence of risks we’re seeing, locally and internationally and the sensitivity we’re seeing in local markets, we’ve been keeping a relatively high level of dollars,” said Mila in an interview in Bogota last week. “We have a slight underweight in some local bonds.”

It’s an investment strategy that has been followed across Colombia’s pension industry, with funds reducing their holdings of local government bonds since an April peak. Foreigners overtook them in August to become the largest holders of the notes, according to finance ministry data as of October.

Not that the strategy has helped Porvenir avoid losses. The manager’s “moderate” fund, Porvenir’s largest portfolio with 102 trillion pesos in assets, lost 1.51% in the 12 months through August, or 11.14% when adjusted for inflation, according to government data.

Read: Abu Dhabi Fund Led Outflows From Turbulent Colombian Bond Market

Colombian assets have come under pressure amid uncertainty over the “historic change in government,” since Petro was elected in June, according to Mila, who’s has held his job for over a decade.

During the presidential campaign, Petro said he wanted to reform the nation’s pension system to give the government a more significant role, which could hurt savings and widen the current account deficit, according to Bank of America economists.

Petro, a former guerrilla member, was elected in June as the South American nation’s first left-leaning president. He’s promised to halt oil exploration in Colombia, floated the idea of taxes on “hot money flows,” and said the country may issue public debt to buy land for poor farmers. Though members of his team have walked back the ideas, uncertainty has prevailed.

Peso Drop Casts Doubt on Petro Energy Plan: Colombia Market Talk

That has led the peso to sink more than 19% versus the dollar since the election, the worst performance among 23 emerging-market currencies tracked by Bloomberg after the Argentine peso. The yield on 12-year notes has fallen to 13.1% after touching a record of over 15% last month.

“When you talk about halting oil exploration, essentially what you’re saying is we’ll stop the entry of dollars in the future,” Mila said. “It hasn’t happened, but it’s a possibility.”

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