According to The Clinic, the Central Bank and the Superintendency of Pensions (SP) issued four warnings to Pension Fund Administrators (AFPs) over their high exposure to derivatives tied to long-term United States interest rates, before the losses recorded this year.
Pension funds lost US$7,700 million between January and September. The hardest hit was Fund E, the most conservative, whose return fell 10.4% in the first nine months, according to SP data. In September alone, it fell 4.9%.
The problem lay in swaps. A swap is a contract in which two parties exchange payment streams linked to an interest rate. Think of it as an agreed bet on where rates will move: if you get it right, you win; if they move against you, you have to put up money. The AFPs held positions that gained when long-term dollar interest rates fell.
According to the account given by Superintendent of Pensions Joaquín Cortez in an interview with El Mercurio, the first two warnings came when Osvaldo Macías headed the agency. The initial warning was in 2024. The second, in January 2025, required AFP boards to change their investment policies to manage derivatives risk according to the profile of each of the five pension funds.
Cortez said that when he took office in April this year, the positions were still growing. "Within days, we approved an amendment to the Investment Regime. First, we immediately halted any increase in these positions," he said.
Meanwhile, the Central Bank warned in its Financial Stability Report for the second half of 2025 that the funds had increased their positions in derivatives tied to long-term dollar interest rates. The document acknowledged that this strategy had boosted returns, although it also increased exposure to sharp rises in long-term rates.
The central bank described the specific risk. If rates rose abruptly, the funds could face margin calls, meaning demands to put up cash as collateral to maintain the contracts. In that stress scenario, they could be forced to "liquidate domestic fixed-income assets, putting pressure on those markets," the report said.
That scenario arrived on September 16. That day, the Federal Reserve (Fed, the central bank of the United States) raised its rate from 3.75% to 4%, contrary to what the market had expected before the start of the war, according to the outlet.
If your savings are in Fund E, this affects you directly. It is the fund many people nearing retirement choose precisely to avoid volatility, and this year it was among those that suffered the most.
The amendment to the investment regime approved by the SP in April sets a derivatives exposure limit of 3% of the fund's value for Funds A and B, 2.5% for C and 2% for D and E. The rule takes effect on November 4, and AFPs must reduce their positions in these transactions before that date.
