According to Ex-Ante, the Superintendency of Pensions opened sanction proceedings against all seven AFPs (pension fund administrators) on Tuesday. Finance Minister Jorge Quiroz warned that their directors could be held liable with their personal assets if breaches are proven.
The controversy stems from losses in funds D and E. Fund E, the system's most conservative fund, recorded a negative real return of around 10.4% between January and September. Criticism has focused on the use of financial derivatives linked to United States interest rates. A derivative is a contract whose value depends on another asset; it works like a bet on how, in this case, an interest rate will move.
If you are in Fund E, the figure translates as follows: for every $1,000,000 saved at the beginning of the year, your balance was worth around $104,000 less in real terms in September. This is the fund recommended for people nearing retirement, precisely because its value should fluctuate little.
"The nature of the penalties, as established by law, is that whenever a director fails to fulfill their duty of diligence and care, directors are liable with their assets," Quiroz said. He added that the investigation will determine whether the losses resulted from normal market fluctuations or "carelessness, negligence or reckless conduct".
The Superintendency, headed by Joaquín Cortez, announced the proceedings after completing its inspection. It seeks to establish whether the AFPs breached the duty of loyalty and diligence under Article 147 of Decree Law 3,500, the law that created the pension system. That law requires administrators to safeguard investment returns and security, acting exclusively in the funds' interests.
Economist Sebastián Edwards had brought the boards into focus on Saturday in a letter in El Mercurio. He recalled that directors have three duties: care, loyalty and oversight. He also questioned why all seven AFPs followed similar strategies with equally negative results. "Did the directors know the size of the derivatives positions?" he asked.
Speaking for the industry, León Fernández de Castro, president of the Association of AFPs, told Pulso that "nothing crazy has been done here," nor anything outside the law, but rather investments "with a long-term perspective." The association maintains that a decline in an instrument's valuation does not necessarily amount to a realized loss. It is like a house price falling: you only lose if you sell.
So far, no internal measures by the boards to review individual responsibility have been made public. The AFPs informed their contributors of the losses by email but have remained silent in response to the criticism.
The debate has reached Congress. The Speaker of the Chamber of Deputies, Jorge Alessandri, and the President of the Senate, Paulina Núñez, are pushing for special sessions next week. The Labor Minister, the Superintendent of Pensions, the president of the Pension Advisory Council and the president of the Financial Market Commission (CMF) will be summoned to the Senate. The Association of AFPs will also be invited, although industry sources say it is unclear whether it will attend.
