Fund E, the most conservative fund in Chile's pension system, recorded a negative real return of 10.39% between January and September 2026. It is one of its worst performances since the multifund system was created. All seven pension fund administrators lost almost the same amount because they all made the same bet.
According to El Mostrador, the Central Bank and the Financial Stability Council had been warning of the risk since late 2025. Bloomberg revealed that valuation losses on those transactions total US$7,700 million.
To understand what happened, it helps to first understand Fund E. It is the fund designed for people nearing retirement. It invests mainly in fixed income, meaning bonds, and has limits on its portfolio duration precisely because it is conservative.
Duration measures how much a bond's price moves when interest rates change. It works like a seesaw: if rates fall, longer-duration bonds rise more. If rates rise, they fall more.
The pension fund administrators used derivative contracts called interest rate swaps (agreements to exchange fixed-rate payments for floating-rate payments). They received a fixed rate and paid a floating rate, so they profited if U.S. interest rates fell. This extended their portfolios' duration without buying the equivalent amount of bonds and without that exposure counting in the same way toward regulatory limits.
According to El Mostrador, Habitat reportedly devised the strategy and the rest copied it. At first, it worked. Then the war in Iran sent oil prices soaring, revived inflation fears and pushed U.S. interest rates higher. The bet turned against them.
Figures from the Superintendency of Pensions, reported by Emol, show how similar the declines were. AFP Modelo recorded -10.93%, Capital -10.76%, Cuprum -10.43%, Provida -10.35%, PlanVital -10.10%, Habitat -10.02% and Uno -9.91%. The gap between the worst and best performers was just over one percentage point. In September alone, Fund E fell 4.92% in real terms.
Experts explain this through what is known as herd behavior. Soledad Hormazábal, director of Evidence at Pivotes, told Emol that "regulation penalizes pension fund administrators for deviating from the industry average", and that this will change under the reform going forward. Former Superintendent of Pensions Alejandro Ferreiro said it was "impossible not to attribute it to herd behavior".
The warnings were public. In late 2025, the Central Bank warned in its Financial Stability Report (IEF) that pension fund administrators were increasing their exposure to losses from rising U.S. interest rates. In May 2026, it reiterated the warning: positions remained high, although they were growing more slowly. The Financial Stability Council raised the issue in at least three meetings.
The Superintendency of Pensions imposed new restrictions, but by then the positions were already enormous. It now says the administrators have reduced their exposures. Market participants suspect that unwinding these contracts could also be putting pressure on the Chilean peso, although this has not been confirmed.
The Association of Pension Fund Administrators, the administrators' trade association, responded in a statement quoted by ADN Radio: "This is not a bet by the pension fund administrators. This is a long-term strategy". It attributed the decline to interest rate increases by the Federal Reserve, the U.S. central bank, and noted that Fund E returned 8.06% in 2025.
The association added that, across all five funds, Chileans' savings had grown by US$10,778 million so far this year. It also cited 2021, when Fund E fell 13.11% in real terms and recovered that loss by late 2025, although it acknowledged that this does not guarantee a future recovery.
If your money is in Fund E, this affects you directly: it is the fund that was supposed to be the most stable. A group of lawmakers has already sent a formal request to the Superintendency of Pensions seeking explanations, and the pension fund administrators must fully comply with the new restrictions in November.
