LatinFinance - May/June 2014 - 43

revenues, for the money that they raise
from the afPs. investec, for example,
uses compass Group, a specialist latin
american fund manager, to distribute its
funds in chile on a non-exclusive basis.
"afPs prefer to work with one local firm
only," says Richard Garland, managing
director, americas and Japan client group
at investec. "that firm is able to filter out
the best funds. otherwise, local asset
managers would get contacted by hundreds
of international firms every day soliciting
work."
However, while chile's pensions industry
has served as a model for reform-minded
countries elsewhere in latin america,
and while it has taken a lead in terms of
managing international asset managers,
some see new government policy risks
facing the industry.
chile's new moderately socialist
government is looking to raise taxes by
around 3% of GDP to finance education
and other social projects. according to
Habitat, the tax changes will lead to its
pension clients receiving $107 million a year
in diminished returns, while the pension
system as a whole will lose around $428
million.
"for those joining the system today, the
reforms will reduce their final pensions by
around 6%," cristian Rodríguez, the afP's
chief executive officer, said in april. "it's
important that our members know what is
at stake if the reforms in their current form
are approved."
meanwhile, the chilean government also
plans to introduce a state-backed pension
provider to compete with private pension

CRISTIAN RODRIGUEZ
HABITAT

"FOR THOSE JOINING
THE SYSTEM TODAY,
THE REFORMS WILL
REDUCE THEIR FINAL
PENSIONS BY AROUND
6%. IT'S IMPORTANT
THAT OUR MEMBERS
KNOW WHAT IS
AT STAKE IF THE
REFORMS IN THEIR
CURRENT FORM ARE
APPROVED"

administrators, in what could be the
biggest shake-up of the country's pension
system for more than a decade.
michelle Bachelet - who assumed office
as president on 11 march - has mandated
Javiera Blanco, the new labor minister,
to introduce legislation within the first
one hundred days of her administration
to set up the new provider, to compete
directly with the afPs. During this period
a committee of national and international
advisers will advise on other changes to the
pension system.
the number of afPs has more than

halved since the 1980s. Blanco has argued
the new provider should help to reduce the
commissions that private providers receive
through increased competition while
extending the system's coverage to include
all chileans.
She says the chilean pension system,
when it was established in the 1980s,
initially set a target for the percentage of a
worker's pre-retirement income that is paid
out by a pension program upon retirement,
at 70%. But in reality, the ratio is lower than
40% for men and lower still for women, she
adds.
"the state-backed afP is planned to
improve the role of the state in pension
provision," Blanco said recently. "the
main role of the state is to ensure that
there is pension coverage for the whole
population."
the minister pointed to research
showing the system is efficient in terms of
the profitability of the afPs but wanting in
terms of the performance of the pension
funds. However, economists have criticized
the move and say they cannot see how
a state-backed provider will improve
performance.
"i think a state-backed provider is a very
bad idea," says cifuentes at the University
of chile.
"management fees are already fairly low,
so i cannot see how competition from the
state provider can reduce them even more.
Pension funds returns have very little to
do with the funds' management and much
more to do with the amount that someone
contributes while they are working. in fact,
returns have been pretty decent." LF

Setting the pace
Chile's biggest pension funds
Investment allocations (%)
Manager

Fund

Provida

C

Habitat
Capital

Annual returns (%)

Assets ($bn)

Treasury
bills (local)

Corporate
debt (local)

Bank debt
(local)

 Equity
(local)

Equity (int'l)

  Debt (int'l)

2013

10-year
average

19.5

12.63

8.55

8.07

14.22

25.09

15.66

4.37

8.35

C

15.8

15.27

11.11

13.51

13.26

25.28

12.86

4.84

8.69

C

12.8

11.68

9.66

11.87

13.8

25.95

15.83

4.32

8.36

Cuprum

C

10.9

13.39

8.31

13.31

13.08

25.24

14.32

5.41

8.80

Provida

D

8.3

20.31

9.74

11.46

6.11

13.5

13.78

5.26

4.40

Habitat

B

7.9

9.48

5.34

7.79

16.34

42.22

11.05

4.59

5.71

Cuprum

A

7.6

2.37

1.33

3.09

13.95

63.83

9.57

7.13

6.72

Habitat

A

7.6

1.83

2.3

3.51

14.04

63.95

8.19

7.02

6.82

Provida

B

7.3

7.29

4.27

3.88

16.98

42.04

15.11

3.87

5.33

Capital

A

6.5

2.32

1.37

2.26

14.32

64.92

11.93

6.51

6.73

Source: Superintendencia de Pensiones, allocations to end 2013

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