/ New Proposed Benchmark Regulation for Chilean Target Date Pension Funds

Hybrid benchmark model grants AFPs flexibility in defining strategic asset allocations. Public consultation open until July 31.

Felipe Cousiño
Partner

Francisca Donoso
Senior Associate

The Chilean Pension Regulator (Superintendencia de Pensiones – “SP”) published on last Friday for public consultation a draft of the new Investment Regime that will govern the ten (10) types of target date funds (“TDFs”), also referred to as lifecycle or generational funds, which will replace the current A, B, C, D and E pension funds in April 2027.

One of the most relevant aspects apparently emerging from the draft is the SP’s decision not to establish a single centralized benchmark applicable to all pension fund managers (Administradoras de Fondos de Pensiones – “AFPs”). Instead, the regulator apparently proposes a hybrid model under which each AFP will be responsible for defining its own strategic asset allocation for the different stages of the life cycle of the pension fund participants, within the ranges established in the Investment Regime, thus granting the AFPs room to implement their own investment strategies.

Key Features of the Proposal

AFP-Specific Strategic Allocations

Each AFP would be required to establish strategic allocations by asset class for the various stages of plan participants life cycles. These allocations would serve as the reference portfolio against which performance is measured.

Performance Measurement and Incentive Framework

The relative performance of each TDF would be measured monthly against the AFP’s own strategic asset allocation corresponding to each life-cycle stage. This benchmark would serve as the basis for the determination of performance fees or penalties.

Asset-Class Reference Indices

The SP also proposes the use of specific market indices for different asset classes to be used to build the relevant benchmarks.

In the case of foreign fixed income investments, the proposed indices include:

• Foreign Investment Grade Fixed Income: Bloomberg Global Aggregate Total Return Index Value (100% Hedged CLP).
• Foreign High Yield Fixed Income: Bloomberg Global High Yield Index.
  • Unhedged CLP for benchmarks corresponding to participants up to 50 years of age.
  • 100% Hedged CLP, participants over 50 years of age.
• Foreign Emerging Markets Fixed Income: Bloomberg Emerging Markets USD Aggregate.
  • Unhedged CLP for benchmarks corresponding to participants up to 50 years of age.
  • 100% Hedged CLP, participants over 50 years of age.

The proposal also establishes indices for the various categories of liquid equity investments.

Alternative Assets Index

For alternative assets, the SP proposes to develop its own indices (one for private equity and another for other alternative assets).

Glide Path Structure

The draft Investment Regime further establishes a glide path that determines the maximum permitted exposure to growth assets according to the life-cycle stage of the relevant plan participants.

Investment limits

The proposed Investment Regime provides for a simplified investment limit structure. Among those new limits is a general limit for investments in private equity, which varies between  5% and 20%, depending on the stage of the life cycle of the relevant TDF.

Aggregate underlying fees

TDFs will not be able to bear in the aggregate underlying fund and separately managed account fees in excess of a range between 0.56% and 0.14%. AFPs must bear the excess.

The consultation process will remain open until July 31, 2026.

If you need more information, please do not hesitate to contact our Capital Markets team.