SAO PAULO, Oct 3 (Reuters) - Brazilian pension funds should invest in riskier assets if they want to close large shortfalls or beat their annual targets now that the country braces for a prolonged period of low interest rates, a government watchdog says, newspaper Valor Econômico reported on Tuesday.
While Previc, a unit of the Social Security Ministry, said the government does not suggest investment strategies, taking a proactive stance to help funds mitigate risks associated with Brazil’s macroeconomic is reasonable, Valor said.
“If interest rates continue to drop, then pension funds will need to make adjustments at once,” Fábio Coelho, deputy superintendent at Previc, was quoted as saying.
His remarks come as local borrowing costs appear headed for their most aggressive reduction cycle in a decade. Economists expect the benchmark Selic overnight rate to fall as low as a record 7 percent by year-end and remain there for a long period.
According to the Previc report, pension funds are yet to adjust the composition of their investment portfolios to account for low rates, Valor said. Efforts to obtain a comment from Previc’s spokespeople were unsuccessful.
Pension funds oversee assets equal to 12 percent of Brazil’s gross domestic product. Their performance has missed minimum targeted actuarial rates of return since 2009, industry group Abrapp said this year.
The longest streak of annual deficits in decades is bringing change at many funds, which are considering criteria other than returns to protect the savings of over 7 million workers. Most funds may again miss their return targets this year, industry leaders have told Reuters.
According to Previc, there are no immediate or medium-term liquidity and solvency risks afflicting pension funds, Valor said. Still, starting in 2019, risks could emerge because of potentially wider deficits calculated at present value, the paper noted, citing the Previc report.
$1 = 3.1641 reais Reporting by Guillermo Parra-Bernal and Ana Mano; Editing by Dan Grebler