Latin America is one of the key emerging market areas which have attracted a growing proportion of UK pension fund money during the 1990s.

Emerging markets as a whole ac-counted for £6bn of the £400bn measured in the 1996 UK pension fund industry survey by The WM Company. Although this may seem relatively small, it has built up from very modest numbers at the start of the decade. Indeed, by the end of 1996, some funds had more invested in emerging markets than in North American equities - seeing greater potential outside the world's largest economy.

Over the last two years, Latin America represented around £1bn of the investment in emerging markets, while Pacific was the leading area with over £3.5bn.

Interest in Latin America grew considerably after very strong returns in the early 1990s - for example, funds showed a return of over 130% from the area in 1991. Investment levels fell back last year following poorer returns more recently - although the 1996 return in sterling terms compared well with returns available in North America and Europe and was significantly better than that available in Japan, for example.

Overall, Latin America has delivered average annual returns for the funds of over 22% during the last six years - well ahead of the WM overseas average of 15%. However, the returns varied significantly from year to year. In 1991, UK pension funds saw a high return of 131.5%, which significantly dropped the following year to 43.1%; increasing to 61.1% in 1993, and then dropping the two consecutive years --27.0% in 1994 and -14.8% in 1995. Last year's returns levelled at 9.7%.

The overall figures for Latin American returns mask huge variations be-tween the different countries. For example, the returns earned in 1996 ranged, in sterling terms, from over 30% in Brazil to minus 30% in Ven-ezuela.

This emphasises the crucial importance for investment decisions of country selection in these markets.

The UK funds surveyed held direct investments in more than 10 Latin American countries in 1996, ranging from over £150m each in Brazil and Mexico to around £100,000 in Guat-emala and Panama. The smaller in-vestments generally represent single stocks held by individual funds. Around 30% of Latin American exposure is through investment in Latin American pooled vehicles.

Many funds naturally hesitate to have sums tied up in such volatile markets but others feel the potential of high returns justifies exposure of relatively small sums.

Robert Greenshields is marketing manager, WM Company in Edinburgh

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