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Chilean pension funds are ready to invest in private equity and private debt: hedge fund rule clarified to remove obstacle for investment.

The Chilean pension regulator has recently released an important clarification (SP Official Ruling 18847 dated August 24, 2018 - “the Clarification”) to the hedge fund prohibition rule (SP NCG 220 – Hedge Fund Prohibition).

In previous newsletters we had been discussing the regulations issued by the Chilean pension regulator (Superintendencia de Pensiones – “SP”) to implement the amendment made by Law 20,956 to the pension fund statute (DL 3,500) that would allow direct investment of Chilean pension funds in foreign private equity funds and make co-investments (click here to see our earlier newsletters discussing the regulations and this statutory amendment) and the effects of the Hedge Fund Prohibition (click here to see our earlier newsletter discussing this prohibition).

The SP has been trying to ensure that by permitting Chilean pension fund (“AFP”) investment in alternative assets such as private equity, infrastructure, real estate and private debt, the door was not inadvertently opened for investment in hedge funds. The SP has long had a negative bias towards hedge funds and has stated that this would be supported by research that apparently concludes that the risk/return ratio of hedge funds as an asset class would not add value to the general performance of AFPs. While it is unclear why such research should lead to the banning of an entire asset class, it has been challenging for the SP to ban hedge funds without in turn inadvertently catching true private equity or private debt funds. This is in practice what had been happening for the past nine months.

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La distribución de este artículo es un servicio de cortesía para clientes y amigos de ALESSANDRI y no constituye una opinión o asesoría legal respecto a un caso en particular. This article is provided as a courtesy service to clients and friends of ALESSANDRI. It is not intended to impart legal advice or counsel regarding any case in particular.

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