Investment Options for FAL: Only 8 ONs, Green Light for Sovereign Bonds, and Currently Excluded Provincial Bonds

The government has announced a limited menu of instruments in which the Labor Assistance Funds (FAL) of private companies will be able to invest starting November 1. The Executive Power has established caps on the percentages to be allocated to provincial and corporate bonds, while also imposing restrictions based on credit ratings. As reported by Ámbito, it is estimated that during the first year, the FAL will represent about $2 billion and, in the second year, another $4 billion, which has already sparked a race among banks and brokerage firms to attract clients.

The Ministry of Economy has established that investments can be made in national, provincial, and Buenos Aires City (CABA) government debt. Additionally, resources may be allocated to deposits in pesos and Negotiable Obligations (ONs) issued by private companies.

Both provincial and city debt securities, as well as ONs, must have public offering authorization, trading on markets authorized by the National Securities Commission (CNV), and a AAA risk rating on a national scale granted by at least two rating agencies registered with the body (Moody’s, Fitch, and Standard and Poor’s). This criterion was applied to limit the risk of investments, at least for the initial period of the FAL.

From the market, there are expectations that the investment menu will expand to include variable debt. The only ones without limits are national treasury bonds. A FAL could be 100% invested in Ministry of Economy securities if financial advisors so decide. “The limits imposed by the government are currently understood to be logical. I let you invest 100% in my securities, as these are funds I previously received via ANSES. Today, I allow you to invest in these vehicles, but buy from me, give me the financing,” emphasized Jorge Sodano, country leader of TMF Group for Chile, Paraguay, and Uruguay.

For now, provinces and CABA are excluded, as none have the required rating from at least two agencies. If they are granted the rating in the future, they will be considered, although a FAL may have a maximum of 15% in sub-sovereign securities, with a cap of 5% per jurisdiction.

“Today, one of the cases to watch is that of the City of Buenos Aires. It currently has a provincial bond with a AAA rating, so for that instrument to be eligible, it would need to obtain a second rating at that same level,” Sodano highlighted.

In this regard, TMF Group added that there is “a concrete possibility for the City, as if it decided to issue a new bond with a double AAA rating, or obtained a second rating for an already issued security, it could be included among the investment alternatives available for the FAL.”

For ONs of companies, the limit will be 20% of the portfolio in aggregate and 10% per issuer and its affiliates. Among those eligible for investment are banking entities: Macro, BBVA, Galicia, and Santander; three energy companies: YPF, Pampa Energía, and PAE; and Adecoagro, according to a survey of permitted investments by TMF Group, a company that provides services for multinationals offering trust funds under the FAL scheme. The intention is to “evade risk and maintain liquidity,” emphasized Sodano.

Felipe Couyoumdjian, commercial director at TMF Group, highlighted that the holding period is six months. “All funds we start receiving from December for the month of November will be maintained within the vehicle for a semester. During the first six months, only funds will be received. Starting from the seventh month, companies will be able to fully utilize those funds,” he stressed.

The competition between banks and brokerage firms is ongoing, as large banks have offered significant benefits, including waiving their commission. However, brokerage firms have upped the ante and highlighted that they can also provide some used, but ultimately the most important thing is always the “profitability” they can generate in the portfolio.