/ Private funds subject to regulatory setback in Chile. UCITS and US 1940 Act funds saved.

April 5, 2018

The Chilean pension regulator (SP) issued a new rule on April 2, 2018 (SP NCG 220- “the Rule”) requiring that all private funds, including private equity, private debt, infrastructure and real estate, be registered for private or public distribution in a foreign “Authorized” jurisdiction in order to be eligible investments for Chilean pension funds.

This is an unintended consequence of an attempt by the SP to narrow a prohibition (“Prohibition”) contained in an earlier rule effective November 1st, 2017 which precludes pension funds from investing in funds that use hedge fund investment strategies. After public consultation, the SP has clarified under the Rule that neither UCITS nor US 1940 Act funds would be caught by the Prohibition. This is obviously good news. Unfortunately, however, when the Rule goes on to specify what other funds would not be caught by the Prohibition, it does so by providing a list of three requirements, one of which is that the fund must be registered in an “Authorized Jurisdiction” for either private or public distribution.

A further issue is that the Rule adds that any fund (meaning therefore any private fund) that does not meet all three requirements, including registration, will not be an eligible investment for Chilean pension funds. This would mean, for example, that to be eligible, a fund sponsored by a major global private equity firm would need to be registered for distribution in an Authorized Jurisdiction.

This Rule is disappointing given it might defeat the purpose of recent legislation that was intended to open the door for direct investment by pension funds in alternative assets.


Felipe Cousiño