León Fernández, executive president of the Asociación de AFP (the trade association of Chile's private pension fund managers), said the decline in pension funds linked to U.S. interest rates "is not a loss" and not a bet either. He made the remarks in an exclusive interview with Radio Bío Bío, as reported by BioBioChile.
The controversy began with a Bloomberg article. Using figures from the Superintendencia de Pensiones (Chile's pension regulator), the outlet reported that these contracts had a positive valuation of US$1,400 million a year ago. In September, the worst month for Fondo E, that valuation turned negative by US$7,700 million.
What contracts are we talking about? Since the pandemic and over the last two years, the AFPs bought derivatives known as swaps. A derivative is a contract whose value depends on another asset. These swaps gained if U.S. rates fell. But rates rose and the contracts lost value. In April, the notional value of these positions, that is, the contract's reference amount, reached nearly US$700 million, according to BioBioChile.
The hardest hit was Fondo E, considered the most conservative fund because it invests mainly in fixed income. Between January and September 2026 it posted a cumulative negative return of 10.39%, one of its worst historical drops, according to Meganoticias. In September alone it fell 4.9%.
Fernández explained that this is an economic valuation caused by rising rates. "When rates go up, the economic value of assets falls," he said. According to him, the asset remains invested and pays the same cash flow, but today that money could buy something more profitable. That is why, he said, there is no realized loss.
A comparison helps explain it. If you bought a bond paying 3% and new bonds then come out paying 5%, yours is worth less if you want to sell it today. If you hold it to maturity, it still pays what was promised. Meganoticias also noted that the US$7,700 million figure reflects market value and that not all of that amount has necessarily become a permanent loss.
The industry group's explanation leaves out one fact. In April, the Superintendencia de Pensiones set new limits on derivatives risk. According to Bloomberg, cited by BioBioChile, that rule forced the funds to unwind and sell positions, and to pay banks such as Bank of America and Citigroup. When an AFP closes a contract with a negative value, the loss does become real. It is not yet known exactly how much of the decline has already been realized.
The Banco Central de Chile (Chile's central bank) had also issued a warning. In its Financial Stability Report for the second half of 2025, it cautioned that these positions had grown markedly and could hurt the funds in stress scenarios. Fernández downplayed the warning, calling it "a comment," and noted that pension funds around the world use derivatives.
The group defends the strategy with past results. According to the association, Fondo E returned 8.06% in real terms in 2025 using the same strategy. It also recalled that in 2021 the fund fell 13.11% and recovered that drop by the end of 2025, though it acknowledged that this precedent does not guarantee a recovery now.
Asked whether the fund managers coordinated to follow the same strategy, Fernández replied that this is "impossible." He said each AFP sets its own strategy and that the Superintendencia supervises them. According to the group, adding up all the multifunds, pension savings increased by US$10,778 million during 2026.
If your savings are in Fondo E, the drop shows up in your balance, even if the industry group calls it a valuation. The impact is greater if you are close to retirement, because you have less time to wait for a recovery. The Superintendencia's new rule on exposure limits and liquidity requirements for derivatives takes effect on November 4, 2026.
