The Superintendence of Pension Fund Administrators released a new draft regulation concerning permitted investments of Chilean Pension Funds on 22 Aug 2017.
Chilean Pension Fund Administrators (AFPs) have about 180 billion US dollar in assets under management. A recent reform to the Pension Fund Law (Decree Law 3500) requires that they invest between 5% and 15% of their portfolios in alternative assets, i.e. between 9 and 27 billion US dollars in alternative assets.
Those alternative assets include (a) instruments, operations and agreements representative of real estate assets, private equity, private debt, infrastructure projects and other types of assets traded in private markets, determined by the new Investment Regime (b) Investment Fund quotas and quotas of Mutual Funds governed by Law No. 20,712; and (c) Bonds issued by Investment Funds regulated by Law No. 20,712.
The implementation of this reform is subject to the issuance of the final Investment Regime by the Pension Fund Superintendent; and the Central Bank's definition of investment limits in alternative assets for each of the funds managed by AFPs.
The Government announced that it will give fast track to the implementation phase of this reform and has committed to the issuance of the new Investment Regime by 1 November 2017. The last draft of the Investment Regime has been disclosed to the public for analysis and comments during a one-week period ending on 29 August 2017.
Some investments analyst forecast that a significant portion of the AFP's investments in alternative assets will go to global funds because the local market is too small to absorb those investments; and AFPs will need the experience of specialized fund managers. AFPs have traditionally invested in listed stocks and bonds; and do not have experience in the private equity market.
In the past, AFPs have invested small amounts in local feeder funds that invest in foreign private equity funds. However, AFPs have frozen new feeder fund investments as a result of strong public disapproval of such investment structures.
After the issuance of the new Investment Regime, it is expected that AFPs will vigorously invest in global private equity funds. AFPs' direct investment in those funds will require that the same be approved by the Risk Rating Commission in Chile.