NewsChanges in the investment regime

Enero 19, 2022

For some time now, investment in Alternative Assets continues to grow as an important investment alternative por Pension Funds. In order to continue improving the profitability of these funds, the Superintendencia de Pensiones has set out for consultation a draft to amendmend the Investment Regime (“Regime”) that mainly addresses this type of assets.

Felipe Díaz T.- Roberto Spencer U.

What are Alternatived Assets (“AA”)?

 The AA correspond to the class of financial and/or real assets, other than traditional assets, traded in the capital markets. These include investments in real estate, infrastructure, private debt and private equity.

Direct investment by pension funds in this type of instruments was authorized in 2017 by the Law Nº 20.956.- Today, the Regime describes them as “Instruments, operations and contracts representing real estate asstes, private capital, private debt, infrastructure and other assets traded in private markets, as well as vehicules that invest in commodities, hereinafter alternative assets”[1]. The same section of the Regime extablises ten different types of AA under letter n), from n1) to n10).

What changes are proposed by the Superintendency of Pensions to the Regime?

 The changes proposed and under consultation by the Superintendency are as follows:

  1. To allow investments in the instruments mentioned in Chapter II, paragraph II.1 letter n.4) of the Regime, which refer to “shares of closed national corporations, corporations by shares (SpA) and national limited partnerships by shares”[2], with only one independent valuation report.

The current text of the Regime establishes that two independent valuation reports are required in accordance with Chapter II, numeral II.2.6, letter b, third paragraph. The purpose of the change is to ensure more efficiently the investments of letter n4) in addition to facilitatin, based on the requirements, the investment in such assets.

  1. Approval of the change to the AA term, for the limit per issuer applicable to domestic investment funds not approved by the Risck Classification Commission (“CCR”), which preferentially invest in AA.

The proposed change seeks to standardize that domestic AAs are subject to the same rules as foreing AAs in this respect.

  1. Improvement of the accounting of future pledges or commitments for purposes of AA limits.

Currently, pledges and commitments are accounted for in the same way as the actual investment, i.e., limits are calculated based on 100% of the committed investment, regardless of whether or not it achieved. Capital calls average 60% of the committed amount in the first 3 years. Likewise, as of the 4th year, capital calls begin to be offset by capital returns, therefore, it becomes less necessary to provide for the future use of the investment limit (the limite is released in approximately that proportion). This change proposes to account for 60% of future pledges or commitments in AA limits rather than 100%, thus using the limit more efficiently currently and moderately increasing investment slack in AAs.

  1. Incorporation of the limit of bonds with no fixed maturity issued by banking companies set by the Central Bank of Chile (“CBC”).

On 12/09/2021, the CBC agreement 2442E-01-211209, amending its Compendium of Financial Norms (“CFN”), incorporating the limites for investments of the Pension Funds with no fixed maturity issued by banking companies. The proposed change includes such rule to the limits of the Regime, establishing a maximum limit of 5% for Funds Type A and B; and 2% for Fund Type C.

In summary, and notwithstanding the fact that these amendments have not yet been approved for incorporation and comments are expected from market players, the changes proposed by the Superintendency of Pensions to the Regime do not substantially alter the Regime, but rather, mainly propose amendments aimed at facilitating and expanding the way in which investments are made in AA, reducing requirements with respect to certain assets and equalizing treatment in certain aspects to that of investments in foreign AAs.

[1] Pension Funds Investment Regime, Chapter II, numeral II.1, letter n).

[2] Pension Funds Investment Regime, Chapter II, numeral II.1, letter n.4)

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