Sura Peru’s purpose: to build the families’ financial future

How has Peru come to where it is now, holding a summit of this kind? Christine Lagarde has said that this is one of the most brilliant Latin American economies; however, it presents some challenges. In order to analyze all sectors of the economy, mining and infrastructure, we have to focus on AFPs (Pension Fund Administrators), a sector that cuts across all others.  How have AFPs helped the economic dynamism in Peru these last 10 years?

It’s more than just 10 years, we are talking about 20 to 25 years; this new history in Peru started at the beginning of the 90s. At that time, Peru was almost broken, with such hyperinflation that today that period is still studied in worldwide economy textbooks, like inflation between the wars in Germany. The country was going through a severe crisis, and the Fujimori government appeared. Even though it is heavily criticized today, we must recognize that he planted this prudent macroeconomic culture that still continues to this day. Not only did this macroeconomic and fiscal order find us well positioned to overcome the trauma of the crisis of the late 90's, but also we were particularly well positioned to enter the commodities super cycle generated by China. That's how Peru began to get ahead and generated all the growth we've seen. It was that combination that made us be seen as a country with great potential today. Nowadays, you have a very neat part, which is the macroeconomic fiscal and financial, which is very strong and I can assure that it is at the same levels of that in first-world countries.  This gives us some reassurance and optimism looking towards the future. This is one of the factors that have drawn attention to the world and that must be the reason why we have been chosen to host the event in September. Basically, we have excelled in a region that until 2012-2013 was outstanding in the world. We must not forget the newspaper front page in “The Economist” in September 2011 reading "inverted America," we were idols at that time. After the last two years they encountered certain situations for which we are not idols anymore, with some mistakes. Now we have to deal with a second stage of reforms and questioning in Latin America to re-take the next leap. Some countries are doing better than others, and I am not talking about Venezuela and Argentina which have lost that boom unfortunately; but I am referring to countries such as Brazil, Mexico and Peru. Within those groups there are countries which have been doing better than others.

At this turning point, and taking into account that the AFPs sector contributes to the Peruvian economy and to the different sectors, don’t you think that it is a bit stuck, as there isn’t enough legislation to lift their roof to continue investing, especially abroad, and to support more projects?

I think that's a perception that conjures up an image linked to the past. There has been a period in which the regulation of investment was delayed. You weren’t able to invest much money out, which was clearly prejudicial to the affiliate. What we must bear in mind is that the affiliate gives us the mandate to maximize the profitability adjusted to risks, and that is what will give us the greatest possible pension for what is imposed for savings. Diversification is essential  in order to achieve this, and, fortunately,  it has been clearly proved in the last two years, in which the performance of Peruvian assets, especially in the stock market, has been very bad in terms of what has happened in the developed markets like the US, Europe and Japan. Having increased our foreign investment percentage from less than 30% to over 40% in the last years, it has been fundamental to get positive returns for affiliates. This has been going on during the last 24 months, which has increased the limit of foreign investments, has created limits to invest in alternative assets. Regarding infrastructure, we can make derivative contracts. Nowadays, the regulation has turned almost 180 degrees, as there are still many things to do, so there has been an important progress. According to economic commentators and other experts, it is a sluggish market. However, they have not gone into detail and they have not noticed the development. I strongly believe that is possible due to the Superintendence of Banking and Insurance, BCR (Central Bank) because they have extended the outer limit despite the devaluation of the Sun, it was always thought that if the currency was devalued, it would be impossible. The AFPs also had an important responsibility of improving the regulation of investment through education and conviction. There is a quite significant progress, and today’s restriction for the supply of paper in the stock market is limited or is taking longer because it is relatively small and there are not many companies that traded in the stock exchange successfully, and that's what Peru requires. Above all, we have noticed that there is an infrastructure, there is a 50% of infrastructure deficit in relation to GDP, we are talking about 80,000 to 100,000 million dollars. These numbers change every year; they always increase, but we must to highlight that there has been a significant improvement over the last 10 years because you cannot do all possible infrastructure in a few years, as China did. We do not have the strength and we are also a democracy whose government has to address other issues in connection to its population. Some projects which should have come out many years ago have emerged today due to permission issues connected the government or environmental impact studies and public consultations that are generating democracy.

Another pending issue is labor informality. How can AFP keep growing in the  insurance or banking sectors without stopping this labor informality, which is one of the highest in Latin America?

From the point of view of the AFP, we are growing to a single digit. It is the growth of a "ripe" industry because we believe that we grow as long as we incorporate people into the formal labor market. Personally, as a citizen, I was much more worried for the labor informality due to the development of the Peruvian economy than due to the growth of AFPs. . As a country, we must make people see that they are in the informal market, and by being formalized, they will get more benefits. We are not succeeding in communicating this. Nowadays, the informal work occurs not only in agriculture and rural areas, but also in the urban outskirts of Lima, and it not formalized because the high cost of formality and they are not able to appreciate its benefits, they cannot see the public safety, transportation or the appropriate education. For example, if you go to Sweden and you have always been in the formal labour, all the taxes you pay,  they come back as first class services; however, here, not all tax returns to the population. I think we should work on showing all the benefits by improving public services and also by reducing the cost of formality, as it is very expensive. It costs a lot because we are very informal and there are very few people paying taxes, therefore it has to be expensive. Thus it generates a vicious circle. We should look for solutions for an informal world and we shouldn’t look for solutions that have worked in the formal economy, we cannot implement solutions that have helped Sweden in Peru. Therefore, we have to be more creative and have to pay attention to the things that work well. I'm not an expert in this matter but I'm sure there must be people do this for a living, they will be able to bring out some alternatives different from what have worked in other countries.

Regarding the AFPs that have been on the market, this company remains solid and Grupo Sura saw something was good to bet in Peru. What did the Sura Group see to invest in Peru?

Sura came to Peru to buy regional assets of ING Group, it bought in Mexico, Chile, Uruguay and part of Colombia. What this group saw was the great potential of Latin America, we are economies that are starting developing and we have great potential. It is a group that understands the Latin American culture as it is, and that is why they are aware that they can maximize, or they can transfer the experience they have had in Colombia to countries which are culturally similar and ride the wave of growth in Latin America. . It is not that they’ve seen something in particular in Peru, but they have seen it in these Latin America countries and in the Pacific Alliance, Sura being one of the greatest promoters of this alliance. It makes sense to assemble a block where we can integrate ourselves productively, not to improve trade between the members of the group, but to let other countries come and buy from this alliance. The big challenge is to generate great synergies between countries and maximize this value so that the world sees us as a supply block.

According to some articles brand association has been quite difficult as they generated distrust on people who had their funds in Integra. Do you think that there has been some decoupling between the Sura Group brands and AFP Integra? Has it been difficult to transmit the corporate image?

No. I think the entrance to Sura group to Peru has not been traumatic and the strength of brand Integra has helped a lot. In Peru’s case, different from Mexico or Chile, Colombia-Peru relationship is very good and there has never been any conflict between them. Moreover, Peruvians and Colombians are quite similar.

The Sura group has much more to give to Peru. What is the strategic planning?

I believe that what we've seen of Sura group in Peru has just begun, but we have to discern since the group has various businesses. We are part of Sura's Management and the value that Sura can provide to Peru is important because it is a player in the world of savings. Unlike other business models that have the customer’s assets and liabilities, we want to maximize the customer’s assets and increase their savings are as much as we can. There is no interest in selling a credit card, we want to help customers to build their financial future; and in that sense, being focused only on providing saving and investment alternatives makes us different from other groups.

Do you think people are aware of the tangibility of the projects in which they are putting their savings? Are people aware that when crossing a bridge, that bridge has been done thanks to their funds, that the Lima Metro has been made thanks to them; and the AFPs really play a role, despite the distorted image that the public has?

I don’t believe that there is that kind of awareness yet, I do believe that it's important but at a secondary level. Our main goal is to give the affiliate profitability, he longs for profitability more than anything else; and for example, that we are relying on the Lima Metro is irrelevant for the affiliate of Cajamarca. What I want is to make that Lima Metro profitable for the affiliate of Cajamarca as they don’t use it. Obviously, the metro promotes work in Peru, and generates welfare to Lima affiliates, but if it is not profitable, we cannot invest that money that does not belong to us into something that is not profitable. The first thing we have to bear in mind is to make it profitable, if it is profitable, and if it has this multiplier effect that generates economy growth, a virtuous circle is generated. Sometimes the affiliates are confused by certain messages, in the sense that there is not investment in infrastructure and, there will be investment, if it generates profitability. In addition to informality, there are many people who benefit from this infrastructure and who have no idea what the AFPs are. The AFP system, as we know it, is a structure that works very well and it is almost perfect for citizens in formal economy. If you compare it with Greece, Spain or with what will happen in the US or Japan; in 2050 there will be a person over 65 years old for every person under 65 years old. It is a distribution system in which young people are needed to pay adults their pension; how does a young man manage to pay a pension to an adult without losing half of his salary? These systems will fail as demographic in the world is moving. They have always failed that’s the thing. However, the different states are not currently showing that failure in its balance. Individual capitalization is a system that will work quite well, but the big challenge is that the pension system is failing to incorporate the informal system, which is a very high percentage in Peru; it is the main opponent of the AFPs. They are clients; they don’t even contribute, and they only benefits from the AFP, as they have infrastructure; the government funding lowers interest rates, enabling them to have  a solid personal financial system. AFP system became an important contributor to national development, and those who do not contribute because they are not in the formal system because they do not know about it or they are not able to do it, get benefits, too. The AFPs have funded the Camisea-Lima pipeline in the IIRSA (Integration of South American Regional Infrastructure) which are the roads going from West to North-South Centre, the airport of  Peru Airports, and a lot of works in which AFPs have contributed to and have helped the successful development of the past 20 years in the country's economy.

Why should an affiliate choose this AFP and no other in the market?

There are several important reasons. Firstly, we had very good profitability records over the past 20 years. Not only do we want to be the most profitable AFP in a particular year, but also we want the profitability we generate in the long run to be the most efficient considering the risks, and on average, we want to achieve higher profitability than our benchmarks. Secondly, we have an outstanding investment team, with experienced people, and we have a very important circle of customers. Since the last years there has been a much more active role as investor to fend for the minority interests and to propose improvements in the corporate governance of the companies, taking into account the principles of responsible, environmental and social investment. We all started in the corporate governance but we have already begun to incorporate other criteria when investing. What is more, like Sura, we, together with the stock market, have launched the Cofide and other responsible investment principles, last year at COP20.

I think that by working on a pension fund with an investment horizon of 30 years, you cannot see what will happen in the future. Definitely, we are concerned about the 2016 elections, but we must think beyond, and that is fundamental.

Do you believe that Peru is staying in a comfort zone because of a number of external or internal factors? What should the financial sector and particularly the AFP do in order to continue rebalancing Peru's economy, at this moment when there is a bypass?

I think the greatest benefit that gives the pension system to the economy is that we are investors that are going to be in all economic cycles. I agree with what you stated, a few weeks ago, about deciding not to participate in the process of slowing down, (25:48). We do this permanently, we are always getting assets and we are constantly investing. One of the greatest benefits for the affiliate is that we invest in low market cycles and that's why we are great generators of profitability in the long term, especially in the Peruvian part because there is more liquidity in the international part. We are offering a lot of opportunities that will generate a greater benefit to the affiliate and that helps many projects to find funding opportunities during difficult moments, and that's a very important role of the AFP.

Many Peruvian companies are on the New York Stock Exchange, there has been a direct relationship since the FTA opened wide the Peruvian economy. Which are the relationships and synergies that should be strengthened in the AFP industry with the United States?

We are global investors, we see the United States as a very attractive market for its liquidity, and the diversity of assets, and for its experience in the process. United States is already in another stage with its processes, controls and corporate governance. For me, like AFP, the USA is a source of learning of how to start implementing the best practices and how to avoid the bad ones. We have learned many things from the 2008 crisis; and I believe it is more than just learning. It is a reminder we must always bear in mind, and above all, there are no zero risk investment that pays more than US Treasury bonds.

In Peru you see a strong financial issues, there have not been problems with mortgages, structured assets, and nonexistent or high risk underlying assets. This learning is acquired from the United States but we should have the same relationship with Europe and Asia because they are very important countries from the point of view of the portfolio.

Given the current situation, facing an international investor, which Peruvian image would you like to give? And which would be the headline?

The image of a country in which you can trust. Peru needs long term investors, and the only way to get them is by making them trust in macroeconomic, political and legal terms. Here we have the biggest problem. Rules must be clear, and they can predict within normal variables how the business works. If we manage to earn that trust, Peru will have plenty of opportunities to grow. This country has not a large population and it has no debt. It has a very important geographical diversity, and an enormous potential of urbanization because, unfortunately, today it happens in Lima mainly, but there are other cities that are growing to construct. And above all, the population has poor education. As soon as we solve the educational theme, there will be 30 million people who will become more productive. If you encourage confidence, the rest should come on its own.

You have been to other countries; do you think all of this is known?

I think people are asking more and more, but currently it is unknown. People, who want to invest, know where they should look for. And when they come to Latin America, Peru stands out. Opportunities are being generated because of all the reasons that I have been mentioned before, even because of the food, which is an impressive ambassador.

If you had to choose a title for this interview, what would it be?

Sura Peru’s purpose is to build the families’ financial future. That is why we work and we do believe that the purpose should go beyond that. It should be encouraging and motivating. I am convinced that Sura people know this very well. When Sura “bought” us, they showed us they had very clear principles and values. In this company, transparency and ethics are fundamental. And this fits at any level.