stakeholders, the National Banking and Securities Commission (CNBV) has established specific regulation regarding CKD’s issuances, including shareholders’ rights and responsibilities. In addition, the CNBV has developed monitoring and surveillance processes according with best international practices.<sup>27</sup> The diagram below illustrates an issuance of CKDs in its simplest form. A fund manager, acting as a sponsor, creates a Mexican issuer trust, which in turn obtains the necessary approvals from Mexico’s securities regulator, the National Banking and Securities Commission to issue and publicly offer CKDs in Mexico through the Mexican Stock Exchange. The product of the placement of the CKDs is invested in the portfolio companies as an equity, debt or as a combination of both. The issuer trust then enters into a management agreement with a fund manager, who is responsible for finding and recommending investments. Once such investments are approved and made, the fund manager is responsible for managing them until their divestiture is completed. The performance of CKD is linked to the accomplishment of the portfolio companies in which the issuer trust invests.

**Figure 13: Illustrative Issuance of CKDs**

<!-- Start of picture text --> Fund Manager<br><!-- End of picture text --> <!-- Start of picture text --> Issuing Trust<br><!-- End of picture text --> <!-- Start of picture text --> CNBV<br><!-- End of picture text --> <!-- Start of picture text --> Portfolio<br>Companies<br><!-- End of picture text --> <!-- Start of picture text --> Issuance<br>of CKD<br><!-- End of picture text --> <!-- Start of picture text --> Proceeds<br>from CKD<br><!-- End of picture text --> <!-- Start of picture text --> Investment<br>in CKD<br><!-- End of picture text --> <!-- Start of picture text --> Mexican<br>Stock<br>Exchange<br><!-- End of picture text --> <!-- Start of picture text --> in CKD<br>Pension<br>Funds<br><!-- End of picture text --> <mark>Another contributor to the diversification of the pension fund portfolios was Mexican REITs (Real Estate Investment Trusts) or FIBRAs launched in 2011. Before the launch of these products, pension funds were not allowed to invest directly in real estate assets. FIBRAs are trusts the purpose of which is to issue investment type securities CPIs (Certificados de Participaciуn Inmobiliarios) and raise funds from their placement in the domestic and international capital markets, with the purpose of financing, acquiring and/or developing real estate projects (industrial, commercial or residential).</mark><sup>29</sup> <mark>The placement of the CPIs by the FIBRA on the Mexican Stock Exchange (or international capital markets) is backed up by the real estate portfolio comprising the trust assets (along with any lease rights and/or funds destined for the financing of the acquisition and/or development of real estate projects). Holders of CPIs are also able to trade them on the secondary market. Returns on FIBRA investments can be generated in three ways: dividends obtained through leasing less operating expenses (fixed income); performance, through the generation profits on the Mexican Stock Exchange; capital gains. FIBRAs are considered hybrid instruments (fixed and variable income), as holders receive periodic payments (from the lease) and can yield capital gains, as they can be traded on the capital markets. AFORES own the equivalent of 2.9 billion dollars in FIBRAs, or roughly 20% of all FIBRA issuance. The following is a diagram that illustrates an issuance of the certificates CPI in its simplest form.</mark>

> 27 OECD (2014): https://www.oecd.org/daf/fin/private-pensions/G20-OECD-Report-Annex-Effective-Approaches-LTI-FinancingSept-2014.pdf

> 28 http://www.iflr.com/Article/2660162/Mexico-Institutional-private-equity-emerges.html

> 29 As of March 31, 2016 Fibra Uno – the first FIBRA launched - had a portfolio of 511 properties that totaled approximately 76 million sq ft. Fibra Uno targets properties with the best locations, high-quality assets and diversification of geographies, segments and tenants

> <u>http://en.fibra-uno.com/wp-content/uploads/2016/06/One-Pager-FUNO-22-Jun-16.pdf</u>

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