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Miguel Largacha Martí­nez

COLOMBIA - Finance

Off to Market

President, Porvenir


Miguel Largacha Martí­nez received a law degree from the Universidad Javeriana de Bogotá, in addition to specializing in financial legislation at the Universidad de los Andes. Before coming to Porvenir, Largacha held various positions at BBVA, including the vice-presidencies of institutional and corporate banking and the presidency of BBVA Horizonte and Pensiones y Cesantí­as, among others.

How would you characterize the current rate of private pension penetration in Colombia? What are your strategies for improving the penetration level? The Colombian population is around 48 million; however, […]

How would you characterize the current rate of private pension penetration in Colombia? What are your strategies for improving the penetration level?

The Colombian population is around 48 million; however, only a little more than 8 million regularly contribute to any form of pension fund. The main issue keeping people from contributing is the informal economy. This is not pension reform; it is labor reform. Two important laws regarding the reduction of taxes for payrolls have been introduced, and we are excited by the impact they might have. Tax reform is key in ensuring that SMEs thrive and do their part to strengthen the formal economy. In terms of market education, we launched a campaign called Familia Porvenir, an initiative based on digital technologies in which we wanted to explain to Colombians how pension funds work and how they benefit their future. The family proved to be a great model for explaining this, because every member has a different set of topics and priorities regarding pension funds that relates to each segment of our clients. We developed a robust digital strategy along with a website that explored pension funds through this kind of narrative, always in a simple and entertaining language. This effectively engaged an audience that is otherwise rather difficult to reach, and it was met with a great deal of success. It was a groundbreaking strategy for a financial services firm in Colombia.

What is your short-term outlook for Colombia’s economic situation and its impact on private pension funds?

We have achieved high returns on capital for our affiliates over the last year. In the first quarter of 2017 Porvenir’s largest Mandatory Pension Fund yielded an effective annual rate of 14.57%, and the industry also had a good performance (13.67%). The markets are responding well, but there is always the potential for changes. However, up to now things have been great. The US economy has also been growing quite well, and the equity markets are reaching new heights. Within the pension fund industry, there is an important variable that will determine the bulk of the sector’s development, and that is informality. Informality is improving, and we are in a wait and see mode to determine if informality will stabilize at current levels or if it will display more volatility. The Colombian government has introduced a new fiscal stimulus, and we have to wait to see how it affects the economy.

What opportunities do the 4G projects present for pension funds? What role do pension funds need to play in financing these projects?

Pension funds are investing money in these projects, but the projects also need international financing. We are investing only around 1% of all our assets under management to 4G projects, which is quite low though the legal limit is 5%. We have compromised in recent commitments, and we currently have two projects worth around USD200 million.

With four current players in the market, what opportunities are there for additional private pension companies in Colombia?

This industry needs economies of scale, so you need huge volume. The complexity of the business is high and we have a huge responsibility, so some of the small funds struggle to produce strong numbers that reflect ours. As a larger firm, we can create efficiencies that translate into higher returns. We have a huge responsibility, and every market participant has to be solid. In order to achieve the size necessary to produce the best returns, a large amount of investment is needed. The break-even point for a new pension fund is four or five years. We certainly welcome increased competition, but are somewhat unique because the public pension funds system operates simultaneously.

What are your targets and priorities for this year?

We are looking to digitize our operations. All our customer interactions will be handled through a digital interface. This will be a more efficient and effective system. In four years, we want to have 95% of our transactions completed digitally. This is a huge investment in process. Customers demand innovation, and we need to be able to respond by providing a new platform.



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