/ New Maximum TERs for Chilean Pension Fund investments: Most actively managed liquids drop

7 June, 2022

Most actively managed liquids drop, while ETFs and alternatives such as private equity rise.

Period July 1, 2022 to June 30 2023.


Felipe Cousiño

On June 6, 2022 the Chilean securities, banking and insurance regulator (Comisión Para El Mercado Financiero – “CMF”) published for comment the proposed new annual rule whereby it jointly sets with the  Chilean pension regulator (Superintendencia de Pensiones– “SP”) the maximum fees and expenses (“Max TER”) that may be borne by Chilean pension funds. The excess over such Max TER must be borne by the pension fund managers (“AFPs”).

The main aspects of the rule proposed by the regulators can be summarized as follows:

1.-      The  Max TERs for most actively managed liquid funds  (i.e. mutual funds) will drop. However,  for most types of alternative funds, such as private equity (PE), the Max TER rises (e.g. the PE Max TER rises to 2.12% up from 2.08% and that of PE funds of funds rises from 3.70% to 3.84%). However, the Max TER for private debt funds (excluding funds of funds) will drop from 2.06% to 2.05%. As to ETFs, the Max TER will either rise or stay the same, depending on the target index.

2.-      The proposed regulation does not alter the existing definitions of either the numerator nor of the denominator of the TER. Thus, for example, the definition of the denominator for the TER  for private equity and private debt funds will continue to include inter alia “invested capital” which shall in turn continue to mean the portfolio investments plus distributed and non-recallable investments.  Furthermore, the proposed regulation will continue to allow to alternatively use the concept “ending NAV-Net of Incentive Allocation” taken from the Institutional Limited Partner Association (ILPA) reports, instead of “invested capital”.

3.-      The statistical methodology used to calculate the Max TER continues to contemplate using the 75th percentile of the TERs of each category of funds, except in the case of alternative asset funds, such as private equity, private debt, real estate and infrastructure funds as well as Gold ETPs, for which the 90th percentile of the TERs will continue to be used.

The following is a chart showing the old and the new (proposed) Max TERs:

Foreign and domestic mutual funds and domestic Closed-End Funds (transferable)

Asset type Geographical Zone Business style Old Maximum TER New Max TER
Stocks Developed, Emerging and Global Index 0.36% 0.32%
Developed and Global Others 1.00% 1.00%
Emerging Others 1.25% 1.23%
Bonds Developed Index 0.20% 0.13%
High Yield 0.84% 0.80%
Others 0.67% 0.64%
Emerging 0.94% 0.94%
Global 0.78% 0.74%
Balanced 0.86% 0.97%
Liquidity 0.29% 0.19%

Exchange Traded Funds (ETF)

Asset type Geographical Zone Business style Old Maximum TER New Max TER
Equity Developed and Global 0.57% 0.60%
Emerging 0.70% 0.70%
Bonds Developed and Global Others 0.33% 0.36%
Emerging 0.50% 0.50%
Developed and Global High Yield 0.50% 0.50%

Alternative Assets

Investment type Old Maximum TER New Maximum TER
Private Equity (includes co-investment) 2.08% 2.12%
Private Debt (includes co-investment) 2.06% 2.05%
Private Equity Funds of Funds 3.70% 3.84%
Private Debt Funds of Funds 3.68% 3.77%
Domestic Closed-End Real Estate and Infrastructure Funds 2.03% 2.02%
Gold ETFs 0.63% 0.80%

If you need more information, please do not hesitate to contact our capital markets team.