Answer ... Alternative investment funds (AIFs) are governed by the Single Funds Act (20,172) and by Supreme Decree 129/2014 of the Ministry of Finance (‘Funds Regulation’). In addition, the Comisión para el Mercado Financiero (CMF), which regulates and supervises the Chilean financial markets, is granted powers to regulate the fund industry through general regulations.
Answer ... With the promulgation of the Single Funds Act, previous laws that governed specific types of investment funds were repealed. As a result, all investment funds, including AIFs, are currently subject to the Single Funds Act.
Under the Single Funds Act, AIFs may be structured as private investment funds (‘private AIFs’) or public investment funds (‘public AIFs’). Private AIFs must have fewer than 50 investors; otherwise, they are public AIFs. A much more onerous regulatory regime applies to public AIFs. In addition, public AIFs are subject to a different regime depending on whether they are structured as closed-ended funds or open-ended funds. (Although open-ended funds are more likely to be the structure of choice for hedge funds, Chile does not have a developed hedge fund industry.) For these purposes, a closed-ended fund is a fund that does not permit on-demand redemption of its units in full or that, while permitting such redemption, it defers repayment for 180 days or more. Where applicable, the responses to this Q&A will distinguish between these various categories of AIFs.
AIF structured as public AIFs must be managed by fund management companies authorised by the CMF (‘authorised FMs’); whereas AIFs structured as private AIFs may be managed either by authorised FMs or by private fund management companies (‘private FMs’).Where applicable, the responses to this Q&A will distinguish between these two categories of FMs.
For the sake of completeness, a fund with fewer than 50 investors may also be structured as a private company without being regulated by the Single Funds Act. However, this structure will not benefit from the tax treatment available under the Single Funds Act. Corporate structures fall outside the scope of this Q&A and are mentioned only for comparison purposes.
Answer ... The Single Funds Act and the Funds Regulation only apply to AIFs managed by authorised FMs or private FMs, in each case established in Chile. However, foreign AIFs and their managers should be mindful of the marketing rules applicable to foreign investment funds in Chile and the regulatory restrictions applicable to certain Chilean institutional investors investing in AIFs.
Answer ... Chile is a party to bilateral and multilateral free trade agreements with many countries and economic blocs. Where such free trade agreements cover trade in financial services, they also set out the specific commitments adopted by Chile in that sector. Broadly speaking, Chile’s specific commitments in the financial service sector include permitting foreign investors to provide fund management services through a commercial presence/right of establishment, on terms no less favourable than those accorded to domestic financial service suppliers. Such access and treatment are subject to the restrictions and limitations set out in the relevant agreement. Investments by foreign investors in units issued by Chilean AIFs also enjoy certain protections under applicable free trade agreements or other bilateral investment treaties, subject to the conditions and limitations set out therein. Chile also adheres to international practices regarding the exchange of information on financial investments held by non-resident investors, as further described in question 8.4.
Answer ... Public AIFs: Public AIFs and their authorised FMs are regulated and supervised by the CMF. The CMF exercises its rule-making powers through general regulations. Pursuant to its supervisory powers, the CMF may request all necessary information from authorised FMs to assess:
- their solvency;
- the performance of their asset management function; and
- the state of affairs of their investments.
In addition, the CMF may revoke the authorisation granted to an authorised FM (see question 4) where there has been a serious breach of law or where an investigation reveals that the authorised FM’s business has been carried out in a fraudulent or negligent manner.
Private AIFs: Private AIFs are neither regulated nor supervised by the CMF and are subject to de minimis regulation in the Single Funds Act. However, the manager of an AIF (whether an authorised FM or a private FM – see question 2.6) must provide the CMF with certain information relating to the private AIFs it manages, in the manner and in the frequency set out by the CMF. See question 7.2 for further details.
Answer ... The CMF is a party to memoranda of understanding to foster cooperation and exchange of information with several foreign regulators. At a multilateral level, the CMF has endorsed the Multilateral Memorandum of Understanding of the International Organization of Securities Commissions (“IOSCO”).