Fundação Cesp is the largest Brazilian pension fund sponsored by corporations in the private sector. For the institution, 2010 will be the year to consolidate the strategy and direction of the last decade, and at the same time, a year of new challenges brought by the new economic structures imposed by a new reality worldwide.
Fundação Cesp is currently responsible for managing $11.5bn in assets. This is the combined amount from the different pension plans sponsored by 15 companies in the Brazilian electricity sector which provide the funds to ensure the future of their employees. The sponsors are companies that belong to seven large economic groups, national or multinational: AES Eletropaulo, CPFL Energia, CESP/EMAE, ISA-CTEEP, Elektro, Duke Energy International and Bandeirante Energia (Energias de Portugal).
Private pension and benefit plans are expected to grow in light of the public welfare deficiencies. To illustrate the force of the private entities, while in 2000 their total assets amounted to $69bn, in 2009 it exceeded $260bn – an impressive 275 percent increase in less than ten years.
The resources managed by Brazilian pension funds have gained importance as part of internal savings and even in the overall economy, since their combined assets now represent 17 percent of the Brazilian GDP. Pension plans have become more important players in the Brazilian economic scenario year after year.
Fundação Cesp has made significant progress in consolidation over the past few years. In 2009, for instance, the entity posted a $705m surplus (14.2 percent year on year), and it has won the approval of 87 percent of its beneficiaries, according to the most recent yearly satisfaction survey.
These figures reflect our success as managers, but mostly, they reflect our key concerns: our commitment to the future and well-being of the 46,000 beneficiaries. It is for their sake that we seek sustainability in our investments, striving to strike a balance between safe choices and profitability. We want to make sure that the service we offer is the best possible, and we know that improvement is not destiny, but rather an ongoing pursuit. Our positive performance in finance and our relationship with our customers – whether beneficiaries of the pension and health plans or sponsors – have earned us the nomination as best pension fund in Brazil by World Finance.
Even with the success we have had so far, there is always room to improve. Also, new factors are expected to bear on the process. Falling interest rates, dropping to unprecedented low levels in Brazil, will shift the focus of long term investors such as pension funds. In order to attain the planned yield, investors will have to accept a somewhat higher risk in their portfolio.
A new paradigm may arise in the financial market of Brazil. The basic interest rate keeps falling, and this trend seems irreversible in the medium run – in the short run, there may be a few peeks associated with inflation targets. We may see an increase in equity investments, one of the first choices for more attractive yields, once the idea of higher risk has been assimilated.
Fundação Cesp can be characterised as conservative, with 75 percent fixed income, 20 percent variable income and the remaining five percent of its assets in real estate and loans to participants. Instead of conservative, we prefer to consider ourselves a sustainable investor – looking for attractive returns, yet careful not to place at risk the resources that ensure a comfortable future for our beneficiaries.
There is the pressing need for the assimilation of good corporate governance practices. The perspective of falling interest rates, combined with the perception that investments must be guided by the trade-off between risk and returns, will require both effective management and transparency. These must be seen as the pillars of the new culture in which the relationship between corporation and stakeholders will take place, regardless of size.
All sectors must engage in a productive dialogue for the economy to advance consistently. The necessary conditions for growth are arising, or even consolidated in the country: a significant volume of foreign currency reserves, inflation under control, falling interest rates and positive trade balance.
Risk management is a key concern on the way to economic growth. Since 2007, there is a special area within Fundação Cesp focused on this theme, with a dedicated team for the management of the inevitable risks in our area. They are constantly making forecasts and analysing operational risks, as well as possible threats to our image and values.
Some effects of the implementation of risk management can already be seen in the organisation. One of them is the progressive dissemination of a culture of risk prevention, and the growing awareness of the need to anticipate facts that may bring losses to the pension fund. From the point of view of sponsors, participants and benefit holders, there is more confidence, improved transparency and better corporate governance standards.
The ability to anticipate risks was decisive for the results obtained in 2008, for instance, when the world was immersed in the woes of the largest financial crisis since 1929. At the time, the portfolio of the pension fund boasted a 10.97 percent yield, while the average return in the pension fund sector in Brazil was actually negative.
The same risk management culture is present in the health plans managed by the entity, recognised for the ample coverage they offer to 120,000 participants, providing medical and hospital services, as well as dental and laboratory coverage. Following the self-managed model, that is, not for profit, Fundação Cesp health plans have developed pioneering programmes such as the Preferential Network, investing in the family doctor concept, fostering a closer relationship between patient and care provider. Another example of innovation is the programme for Chronic Disease Management, ensuring ongoing support for patients with diabetes, hypertension and cardiac diseases, and improving their quality of life. These are only some of the reasons why Fundação Cesp health plan is recognised as one of the best in Brazil by the 2009 edition of the Brazilian “Top Hospitalar” Awards.
The outlook for Brazil is very positive this year, meaning we have even greater responsibility in a scenario of falling interest rates in the medium term, associated with bold actuarial targets. Once again, we must find a way to reinvent ourselves.
Yet the ultimate objective of our initiatives is still the same: to live up to our commitment to the quality of life and future of those people who depend on Fundação Cesp. Last year, we launched our project “On the Way to Sustainability” (“Fundação CESP Rumo à Sustentabilidade”), to better channel our desires and needs regarding sustainable development. The slogan of the project is “ensuring sustainability is valuing your future”, and the objective is to bring about a shift in paradigms and transform the culture, raising awareness and encouraging the participation of employees and their respective social networks.
With this initiative, pension funds are encouraging sponsors and their employees to step up and engage in the growth of the organisations and the country – after all, they are the ones who stand to gain the most from their participation. We believe this is an effective way to build a nation that generates opportunities and shares the gains of economic growth among its population.
Fundação Cesp celebrated its 40th anniversary in 2009. In its trajectory, the pension fund witnessed both times of adversity and opportunity. So whatever the next 40 years may bring, we are convinced we can only maintain our success if we preserve our guiding principle: that we must always serve people, ensuring their future and their well-being.
Martin Glogowsky is CEO of Fundação CESP
