Fund E, the most conservative fund in Chile's pension system, posted a real decline of 10.39% between January and September, according to Emol. In response, the AFPs (Administradoras de Fondos de Pensiones, Chile's private pension fund managers) are relying on two arguments: an unforeseen external shock and a long-term strategy to protect retirement income.
The issue escalated this Tuesday. The Superintendencia de Pensiones, the agency that oversees the AFPs, opened sanction proceedings against all seven fund managers to determine whether there were regulatory breaches.
The losses drew criticism from economists such as Ignacio Briones, Sebastián Edwards and Soledad Hormázabal. José Antonio Guzmán, former CEO of AFP Habitat, told Diario Financiero that "unnecessary and imprudent risks were taken".
León Fernández de Castro, president of the Asociación de AFP (the AFP industry association), avoided using those terms. On T13's Mesa Central, he said there is an institutional framework that must rule on the matter and that "the investigation has to decide".
The first line of defense points abroad. "Nobody expected US rates to rise as much as they did," Fernández de Castro said, referring to derivatives tied to US yields. A derivative is a contract whose value depends on another asset, in this case US interest rates.
The logic is simple: when the Federal Reserve (the US central bank) raises rates, bonds already issued lose value because new ones pay more. The association made this point in an October 14 statement, in which it linked the use of derivatives to the shortage of long-term local bonds following the pandemic-era withdrawals.
The second argument concerns pensions. According to Fernández de Castro, the industry shifted from investing with a 10-year horizon to one of "between 15 and 18", and he cited Denmark as an example of international funds that do the same. "The pension didn't fall 10%, the fund did," he told El Mercurio.
For your wallet, the difference matters. AFP Cuprum told its members that its Fund E fell 8.4% in real terms, but that in one example the estimated pension dropped 1.6% for a man and 0.6% for a woman. The explanation: a pension is calculated using interest rates, and when those rates rise, the same savings buy a larger annuity. It is as if the balance shrank, but each peso yielded more at retirement.
José Joaquín Prat, CEO of Plan Vital, told La Tercera that they "faithfully" fulfilled their duty and had "technical grounds" to maintain their positions.
The relationship with the regulator is also under debate. Former superintendent Osvaldo Macías has said the agency warned the industry about derivatives in 2025. In April, the Superintendencia tightened limits on those instruments, with an adjustment period that ends in early November.
Fernández de Castro described that change as the result of joint discussions, although in El Mercurio he took a harder line: "If the regulator's impression was that it was excessive, it should have regulated sooner."
Even so, the association made concessions. Its president said that if there were mistakes "they must be sanctioned accordingly" and acknowledged that the reputational cost "is significant". Renzo Vercelli, a manager at AFP Capital, told Diario Financiero they had stepped up communication with members and pensioners.
One manager admitted to El Mercurio that the chosen duration played a role: "If Fund E had been at 13 years, matched to the lifetime annuity, it would have fallen 7% instead of 10%".
Next Tuesday, the association and the Superintendent of Pensions, Joaquín Cortez, will testify before the Congreso (Chile's national legislature).
