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Two start-ups in talks to launch new Chilean AFPs

Two start-ups in talks to launch new Chilean AFPs

Chilean savers might have called for the demise of the country’s private pension system in the past year, but that hasn’t discouraged entrepreneurs from wanting to enter the industry. 

Since the end of April, two groups have met with Chile’s pension regulator to discuss opening new AFPs, according to lobbying disclosures filed with the country’s government.

Meetings about opening new AFPs appear to be infrequent. Besides the two meetings this year, no other appointments with the pension regulator to discuss the topic have been disclosed going back to 2015, the earliest year for which information was available.

Chile's six existing AFPs ran $190 billion as of the end of June, according to the regulator. The largest pension fund, AFP Habitat, alone managed 27.2% of the assets and boasted 19.5% of the system's savers.

'An AFP without history'

Salvador Palma, who once worked at Moneda Asset Management, told the pension regulator in a meeting last week that he was working to set up a new AFP, according to a disclosure.

Palma told Citywire Americas that he started thinking about the AFP business after an accident last year made it difficult to work full-time, freeing up time for new projects.

He’s making moves despite complaints by some savers that the AFPs have failed to deliver adequate pensions for poor Chileans.

‘The conflict with pensions that manifested last year cast doubt on the industry’s returns. That’s [...] why it makes sense creating an AFP without history,’ Palma said in an interview.

Palma said the process was ongoing but declined to provide a timeline for launching the pension fund.

However, he aims to participate in the bidding process through which the government decides what AFP will manage the pensions of new affiliates, according to the disclosure. The contract would start in August 2018.

The disclosure didn’t list financial backers for Palma, who has been working as an independent financial consultant since he left Moneda in 2013. He declined to name sources of funding, only saying ‘there are groups interested’ in investing in the project.

An 'ethical' framework

Back in March, two representatives of social entrepreneurship group Socialab told regulators the organization was exploring starting an 'ethical' AFP, according to a disclosure.

In the meeting, the representatives said the pension fund would distribute earnings among savers, depositing money directly into savers accounts, a move that the regulator warned could infringe on current regulation.

Socialab's AFP would also create a 'blacklist' of entities and investment vehicles, according to the disclosure. Investments not on the list would get a 'preferential' treatment.

In response, the regulator said that creating such a list isn't forbidden but that the AFP would have to comply with the fiduciary duty of generating the best returns for savers.

Socialab officials weren't available for comment in time for publication.

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