Chile’s central bank has set the limits for alternative investments the country’s six pension funds will be able to access as a result of wide-ranging reform aimed at boosting returns.
The country’s pension regulator released Wednesday the final framework of the reform, which comes into effect November 1.
In a statement, it revealed the limits for alternative investments the Chilean central bank established for the five portfolios pension funds offer their savers. They are:
- 10% for the riskiest portfolio, called ‘A’ fund
- 8% for the B fund
- 6% for the intermediate portfolio, the ‘C’ fund
- 5% for the more conservative D fund
- 5% for the most conservative portfolio, the ‘E’ fund
The overall framework allows investments in eight kinds of alternative investments, including foreign private equity funds, foreign private debt funds and participation in syndicated loans, according to the release.
Previously, alternative investments counted toward the limits for other asset classes such as equities.
The release of the limits and the final rules marks the end of a multi-year process aimed at increasing pensions by facilitating investments in potentially return-boosting alternatives.
In recent years, protesters in Chile have claimed the AFPs have failed to provide adequate pensions to poor savers.
Chile’s new framework underwent two rounds of consultations in which 34 market players weighed in. The limits were also based off legal framework set last year that said each multi-fund would have a limit between 5% and 15%.
The initial draft drawing criticism from the country’s pension funds, which said some investment limits proposed by the regulator were too low to justify operating costs.
In the rules, the regulator also outlines which investments would count toward current limits for assets such as equities, the required currency hedge AFPs must keep and the conditions investments should meet to control risk.
Chile’s pensions superintendent Osvaldo Macías highlighted the role of returns in providing adequate pensions, according to the release.
‘An additional point in returns during a savers’ life can increase in up to 25% the payout they’ll receive when they retire. That’s why these changes will help, in the medium- and long-term, meet the goal of improving pensions,’ Macías said, according to the release.