Brazil’s high Selic base rate has been driving pension funds to concentrate an ever-larger share of their investments in federal government bonds. At the end of last year, those assets accounted for 69.3% of portfolios, up from 42.7% in 2010. Over the same period, equity investments fell to 7.8% from 32.9%.
The figures come from Previc, the National Superintendence for Complementary Pensions, an agency linked to the Ministry of Social Security that supervises and monitors closed pension funds. The shift has closely tracked the Selic, which rose to 15% at the end of 2025 from 10.75% in 2010.
Ricardo Pena, Previc’s superintendent director, told Valor he is concerned about the low diversification of pension-fund portfolios. Even with interest rates expected to fall, Pena said Previc has not seen requests for portfolio changes in the coming years. The Selic currently stands at 14.5%.
When all fixed-income investments are included, not just federal government bonds, pension funds’ allocation to the segment exceeded 80% in 2025. “All over the world, investors seek risk assets that can balance returns. That is the key issue right now,” Pena said.
Despite the concern, Pena noted that funds are complying with limits set by the National Monetary Council (CMN), which allows up to 100% of investments in government bonds and up to 80% in securities issued by financial institutions. The ceiling for equities is 70%, but the actual allocation stood at 7.5% in 2025.
Pena also said pension funds became wary of some investments, such as private-equity funds, known in Brazil as FIPs, after Operation Greenfield, a Federal Police investigation launched in 2016 into alleged irregularities involving pension funds.
Pena said pension funds should already be adjusting their investment policies for the next five years, given the prospect of a lower Selic. Previc has not seen that shift in annual reviews.
Pension funds, he said, do not make decisions that take effect immediately, making gradual diversification necessary. “It is as if I were on a transatlantic ship: I need to move [adjust the investment portfolio] very slowly, looking at the scenario for the next five years,” he said. “What concerns us is how we will get out of this concentration. The real interest rate, which is still high in Brazil, will start to fall, and pension funds should already be repositioning for the next five years.”
Pena also said new rules for pension funds are expected by July. They will require investment strategies to place ESG criteria, environmental, social, and governance policies, at the center of decision-making. “The entities will have to adapt their investment policies to incorporate these criteria,” he said.
In 2025, the sector posted a R$17 billion surplus, according to Previc, its best result since 2013, when the positive balance reached R$18 billion. That reversed a R$10 billion deficit in 2024. Last year, average annual returns stood at 13.23%. Defined-contribution plans posted the highest average return, at 14.2%.
Devanir Silva, chief executive of Abrapp, the Brazilian Association of Pension Funds, said the concern over diversification is legitimate, but fund managers are not “inert.” He said the trend toward lower rates should indeed increase risk appetite, although the move into riskier assets, especially equities, will happen gradually.
“With interest rates at this level, and given actuarial needs, you really end up with a concentration in government bonds,” he said. Actuarial need is a calculation used to preserve the long-term financial balance of pension plans.
“We have an actuarial need of around 4.5%, 5% [a year] and an NTN-B [inflation-linked bonds] yielding 7%, 8% [in real terms a year]. I would say this is an unusual situation, but also a temporary one. The signal that interest rates will fall has already arrived, and executives are watching this very closely,” Silva said.
He also said pension-fund managers need greater legal certainty, including an update to the 2003 decree that regulates administrative proceedings for investigating violations in the complementary pension system. Silva also pointed to overlapping responsibilities between Previc and the Federal Court of Accounts (TCU) in the supervision of large state-controlled pension funds, increasing uncertainty and creating “dual oversight without prior coordination.”
“All of this contributes to caution when it comes to taking risk. I see it as natural to take advantage of the opportunities the market offers, and today interest rates are offering that opportunity. This is not a comfortable situation for anyone, but managers are paying attention. If we move toward greater legal certainty, avoid overlap, and modernize the sanctions regime, that could support our managers more,” he said.
Luis Felipe Vital, chief strategist for macro and public debt at Warren Investimentos, said high interest rates across the entire yield curve, with the Selic still restrictive and long-term rates under pressure from low growth and the fiscal backdrop, help explain the heavy concentration of pension-fund portfolios in government bonds and the reduced incentive to diversify.
“This often results in inefficient, concentrated allocations with little exposure to relevant markets. In most cases, pension-fund resources allow for longer investment horizons and could finance important sectors of the Brazilian economy, such as infrastructure, while also ensuring returns compatible with that horizon and level of risk for participants,” Vital said.
As the macro-fiscal environment allows interest rates to move lower, the portfolio diversification process should deepen, making it possible for those resources to migrate, Vital said. “From a regulatory and governance standpoint, it is important to have rules, policies, and controls ready for that transition,” he added.