According to Emol, Minister of Economy and Mining Daniel Mas linked the sharp fall in the AFPs’ (pension fund administrators) Fund E this Wednesday to "decisions made under the previous government". He added that those decisions "were corrected at the start of this government".
Mas spoke after the economic committee meeting at La Moneda. "We are monitoring it as a government," he said. According to the minister, without that correction "the effect could have been much worse". He did not specify which decisions he meant.
The figures that raised alarm come from the Superintendency of Pensions, the agency that oversees the AFPs. Between January and September, Fund E recorded an average decline of 10.39% in real terms. "Real" means the figure already accounts for inflation.
For context, Fund E is the most conservative fund in the system. It is designed as the lowest-risk option, something like keeping your money somewhere safe before you retire. That is why the blow is of greater concern to people nearing retirement.
By administrator, Modelo recorded the largest decline (-10.93%), followed by Capital (-10.76%). Uno posted the smallest (-9.91%). In September alone, Fund E fell 4.92% in real terms.
The problem also affects Fund D, another conservative fund and the one with the most members nearing retirement age. Over the same period, it recorded a decline of 6.38% in real terms.
What explains the decline? Through derivatives contracts, the AFPs bet that interest rates in the United States would fall. A derivative is a financial instrument whose value depends on another asset, similar to a bet on how a price will move. That strategy did not work out.
According to Bloomberg, those positions showed gains of US$1,400 million a year ago. By September, they had turned into valuation losses of US$7,700 million. Fund E accounted for most of that exposure.
Despite everything, Mas said that "we do not see a greater economic risk than has been disclosed so far". Over the long term, the multifunds continue to show a positive trajectory.
Superintendent of Pensions Joaquín Cortez said he was "concerned" about the results. Asked whether the administrators’ use of derivatives had been responsible, he replied: "Ask them, look at the results".
The next milestone is November 4. That day, new limits on derivatives risk set by the Superintendency of Pensions take effect, and the AFPs will have to close some of those positions just when doing so is more expensive.
