Answer ... According to the Chilean Investment Fund Association, during 2018 and Q1 2019, the largest growth in the investment funds industry was in the alternative investment fund (AIF) segment. As of May 2019, the assets under management of AIFs reached $12.756 billion, representing a growth of 11.5% when contrasted with the 2018 year-end. To a large degree, this growth is attributable to a relaxation of investment restrictions applicable to Chilean pension funds, which used to limit their direct investments in AIFs to a minimum.
In 2017, new regulations on pension funds’ investment policies came into force in Chile, which authorised them to invest in private equity, private debt, infrastructure and privately traded assets. Although the new regulations covered direct participation in investment funds and co-investment, it is the investment fund industry which has seen greatest expansion. Hedge funds are not explicitly covered by the 2017 regulations and it remains unclear whether the Pension Funds Regulator will include them in the permitted investments category.
Chilean pension funds collectively manage over $200 billion in assets and, since 2017, have created specialised investment teams working to identify investment opportunities. So far, nearly 70% of pension funds’ investments in AIFs are held in participations in funds operating in the United States, the United Kingdom and continental Europe.
Answer ... Public AIFs: It is not expected that the Chilean regulation on public AIFs will significantly diverge from the existing structure.
Private AIFs: Yes. On 8 of November 2019, the Ministry of Finance released a tax reform framework bill which proposes to increase the investor diversification rule applicable to private AIFs in order to qualify for investment fund tax status. Currently, the Single Funds Act requires private AIFs to have a minimum of four unrelated participants, with no less than 10% of the units issued by the fund to be eligible for investment fund tax status. The new rule would require these funds to have a minimum of eight unrelated participants, each with no more than 20% of the issued units. This bill is currently being discussed at the Chilean Congress.
Answer ... During 2019, an increase in investments in infrastructure funds and private debt funds was observed. However, the outlook for 2020 remains unclear, in light of possible constitutional and socio-economic reforms.