State Pension Funds currently hold 44% of Equity in the Infrastructure Sector

The three largest pension funds in Brazil – Previ (Banco do Brasil), Funcef (Caixa Econômica Federal) and Petros (Petrobrás) – hold almost half (44%) of the equity in this sector, or R$214 billion (equivalent to 7.5% of GDP).

According to some specialists, the sheer volume of capital these institutions have in the infrastructure sector gives the federal government extraordinary power in terms of the allocation of resources for strategic investments going forward.

Nelson Chalfun, a professor at the Federal University of Rio de Janeiro (UFRJ) pointed out that the history of pension funds, both in Brazil and abroad, is replete with examples of interference by sponsors (in this case, state-owned institutions).

He believes that, when assets are acquired or even a stake in the construction of infrastructure projects without considering the risks involved, and based solely on political interest, there is an increased likelihood of the fund reporting a loss. The main market criticism is that, in most of these cases, the funds are represented by both their sponsors and trade unions.

The funds deny any interference from the government in decision-making regarding the investments made. They say that they only invest in companies and projects that will provide the necessary long-term returns, without affecting either the beneficiary or actuarial targets. According to Luiz Guilherme Piva, an economist at LCA Consultores, the only way of avoiding “the temptation the governments have to exercise their control over these funds” is stronger legislation.

As far as he is concerned, the government will always make indications and suggestions. “What it should not be allowed to do is impose, influence investment decisions or allocate capital specifically”. Specialists in this area generally agree that the sector legislation has been progressing to reduce the levels of interference from sponsors in investments. “But that there is still a risk of interference, particularly to save an undertaking or take advantage in these decisions “, added Chalfun.

Despite this concern, the economist defends the growth of the pension funds in Brazil. “The funds are important sources of financing for Brazilian infrastructure, such as airports, railroads and highways, which require huge volumes of resources to be successfully implemeted.”