Answer ... The most common types of AIFs available in Chile are private equity funds, private debt funds, real estate funds and infrastructure funds.
Answer ... The Single Funds Act established a sui generis legal structure: the investment fund, defined as a pool of assets without legal personality and formed by the contributions made by investors, whose management is entrusted to an authorised FM or to a private FM. In exchange for their contribution, participants receive units in the fund, which grant them economic and voting rights.
As mentioned in question 1.2, AIFs may be structured as public AIFs or private AIFs. Public AIFs have 50 investors or more. Public AIFs are supervised by the Comisión para el Mercado Financiero (CMF) and are deemed issuers of securities. They are therefore subject to a stricter regulatory regime than that applicable to their private counterparts. AIFs can also be structured as private companies, although whenever the minimum requirements to incorporate a private AIF can be met, the corporate structure is not used. As described in question 8, in light of the tax regime granted to public AIFs and private AIFs, they are the most efficient structures to organise collective investments in Chile.
Answer ... The main advantage of public AIFs and private AIFs when compared to the usual corporate structure lies in their tax treatment. Pursuant to the Single Funds Act, public AIFs and private AIFs are tax transparent vehicles. Therefore, their income is not subject to income tax. Also, provided that investors meet certain additional criteria, profits stemming from public AIFs and private AIFs may benefit from further tax relief. See question 8 below for further detail.
Public AIFs are subject to several restrictions affecting their investment policy, indebtedness and management. Where public AIFs are distributed exclusively among qualified investors, however, the legal restrictions on investment policy and indebtedness operate only by default; their internal bylaws may enable them to operate more flexibly. ‘Qualified investors’ include:
institutional investors – that is, banks, financial companies, insurance companies, local reinsurance companies, fund managers authorised by law and any other institutions that qualify as such as determined by the CMF;
- banks, insurance and reinsurance companies, fund managers and securities intermediaries, in each case organised outside Chile and, in the case of securities intermediaries, when acting for their own account or for the account of clients, provided that such clients are not Chilean citizens, Chilean residents or in transit in Chile;
- local securities dealers;
- local dealers of agricultural products;
- Chilean or foreign individuals or legal entities that, at the time of making the investment, hold financial investments in securities which can be offered to the public in Chile or abroad in an amount not less than 10,000 Unidades de Fomento (UF);
Chilean or foreign individuals or legal entities that have delegated their investment decision to a qualified investor pursuant to a portfolio management agreement and provided that:
- the authority to participate in private placements is expressly set out in such agreement; and
- the qualified investor informs the client of the transactions carried out pursuant to such authority with a frequency set out in such agreement;
Chilean or foreign legal entities in respect of which investment decisions are made by a qualified investor; and
Chilean or foreign individuals or legal entities that, at the time of making the investment, (i) hold financial investments in securities which can be offered to the public in Chile or abroad in an amount not less than 2,000 UF and (ii) meet any of the following criteria:
- own assets in an amount equal to or greater than 100,000 UF;
- during the past four months, have entered into at least 20 transactions in the securities market, each for an amount equal to or greater than 1,000 UF; or
- broadly, have sufficient knowledge to understand the risks associated with participating in the securities market.
Private AIFs are not bound by the legal and regulatory restrictions affecting public AIFs and enjoy a greater degree of flexibility. The greatest disadvantage of private AIFs, however, lies in the need to keep a minimum number of participants to remain within the fund tax status regime, as further explained in questions 8.5 and 9.2.
The UF is an inflation-indexed monetary unit of common use in Chile. At the time of writing, 1 UF equals approximately $35.
Answer ... Yes. Because private AIFs enable a greater degree of flexibility when it comes to defining the investment objectives and the general operation of a fund, AIFs typically follow this path. Legal and regulatory restrictions applicable to public AIFs render them unsuitable to pursue certain high-risk investment strategies.
Answer ... Public AIFs: Pursuant to the Single Funds Act, public AIFs must be managed by an authorised FM, which must be regulated and supervised by the CMF.
Private AIFs: According to the Single Funds Act, the management of a private AIF must be entrusted either to an authorised FM or to a private FM, but in the latter case, only to the extent it is enrolled on the register of reporting entities held by the CMF.
Answer ... Public AIFs: Public AIFs must appoint a local custodian to hold only those assets issued locally, by non-dematerialised means, and held by local central securities depositary. Dematerialised instruments issued by local entities that manage the book entries themselves are excluded from this requirement.
Public AIFs investing in offshore assets must entrust their custody to a local or foreign entity:
- whose main business line is the custody of securities or banking;
- which is under the ongoing supervision of a regulatory body equivalent to the CMF;
- which has minimum equity equivalent to 30,000 UF (approximately $1.15 million); and
- which has at least five years of experience as a provider of depositary and custody of securities.
Private AIFs: No.