ACTIVE RETIREMENT.

EVER SO QUIETLY, PENSION FUNDS ARE becoming a true force in Latin American capital markets. In the 10 largest regional economies, assets under management grew by a 25% to US$145 billion in the first half of 2000; membership rolls swelled 10% to almost 41 million people in the same span. "The pension funds are playing an increasingly important role in the markets," says Carlos Peyrelongue, equity funds director for Gestion Santander Mexico.

So far, pension funds have stayed in fixed-income government securities. As consolidation continues, though, funds will pressure regulators for greater freedom to take the kinds of risks that generate higher returns. Brokerage Salomon Smith Barney says pension fund equity investments should grow 16% annually through 2005.

Assets under management are still small compared to each country's economy. Chile's $36 billion in pension funds equals 57% of that country's Gross Domestic Product, but in all the other countries the figure is less than 10%. Although nominal now, those pots are becoming increasingly hefty--almost $69 billion sits in Brazilian pension funds, $19 billion in Argentina and $13 billion in Mexico.

Meanwhile, Spanish banks are extending their control over Latin American pensions. Banco Santander Central Hispano bought a major Mexico financial group, Serfin, for $1.6 billion in May and is merging its holdings across the region-- Santander Mexicano and Genesis Metropolitan in Mexico; AFP Union and Nueva Vida in Peru; and Davidir and Colmena in Colombia. Santander now controls more than a 40% of regional market. Santander also recently bought Sao Paulo-based Banespa.

Not be outdone, Banco Bilbao Vizcaya Argentaria bought Mexico's Grupo Financiero Bancomer for $2.5 billion in June, seizing leadership in the Mexican market. It now holds the keys to a third of the Latin American market. Together, Spain's twin titans control two-thirds of the Latin American market.

While the jockeying continues for the top spot in pensions, the fight on the local level is all about returns. Locked into guaranteed real returns, fund managers are fighting mightily to keep administrative costs down and are seeking freedom to broaden the menu of investments. In Chile, the oldest private pension market, funds have convinced regulators to limit Chileans to only one fund switch per year; unlimited changes represented as much as one-third of fund operating expenses in recent years.

In Argentina, which has one of the most liberal investment regimes for pension administrators, fund managers continue to push the envelope. AFJPs, as the funds are known, have clashed with their superintendent over severe restrictions on putting money in local mutual funds. The key point of contention: a rule requiring funds to keep 80% of their assets in investments that have a risk rating similar to their own.

Fund managers are expected soon to seek higher returns through minority shareholder positions. In Argentina, however, top management at the country's largest bank, Banco de Galicia & Buenos Aires, rammed through a major restructuring in July 2000, flattening the interests of minority shareholders, including 12% controlled by local pension funds. Nonetheless, pension funds are expected to follow the lead of U.S. funds, becoming much more active in Latin America's boardrooms.

Even if that seems far off, pension fund managers will continue to gain force in the coming years. After all, assets under management are expanding at more than $36 billion annually in the region. That sort of money commands respect.