The AFPs' (Chile's private pension fund managers) Fondo E has posted a 10% loss between January and September, and economist Arturo Cifuentes, a researcher at Clapes UC (the economic research center of the Universidad Católica), places the regulatory responsibility on former Superintendente de Pensiones (Pensions Superintendent) Osvaldo Macías, according to La Tercera. In an interview with that newspaper, Cifuentes said the current superintendent, Joaquín Cortez, bears no responsibility for what happened.
Fondo E is the most conservative of the five multifondos (multi-fund options). It invests mainly in fixed income, meaning bonds that pay interest, and is designed for people close to retirement. That is why a drop of this size came as a surprise: it is the fund that should move the least.
According to La Tercera, the AFPs increased their exposure to bonds using interest rate swaps, contracts in which two parties exchange payments tied to interest rates. When rates rose, the value of that debt fell and the hit was larger.
The core of Cifuentes' criticism is duration, a measure of how sensitive a bond is to changes in interest rates. Think of a seesaw: the longer the arm, the more it moves with the same push. "Having a fixed-income portfolio without a duration limit is a basic mistake", he said.
The researcher said Clapes UC identified this gap in a 2019 study and warned Macías, who headed the Superintendencia de Pensiones (Pensions Superintendency) for a decade. He also mentioned a report from last August in which they warned about the rise in the duration of Fondo E's investments.
Cifuentes was less harsh on the AFPs. He said their fiduciary duty is to manage the funds according to current regulation and that the investment, although "unfortunate", was within the acceptable framework. In his view, they lengthened duration to increase returns.
He also pointed to another regulatory problem. Many people who retire under programmed withdrawal (retiro programado) have their savings in Fondo E, which was designed for those who are still saving. For Cifuentes, the two groups should be in separate funds.
The Asociación de AFP (the AFP industry association) has said that only 10% of Fondo E members are over 60, so those close to retirement would not be especially harmed. The managers also point out that over a longer horizon the return has been positive. Cifuentes agreed that a pension fund should be assessed over the long term.
If you have your savings in Fondo E, this year's loss is reflected in your balance. How much it affects you depends on how long you have until retirement and which AFP you are with, details the interview does not provide.
Cifuentes' warning looks ahead. The generational funds, which will replace the multifondos from April 2027 under the pension reform, would in his view have the same conceptual problems. If a risk metric is not set at the portfolio level, he warned, the problem could recur "in five or six more years".
