Key Takeaways
- • Executives at Chile's pension funds (AFPs) appealed to regulators for curbs on volatile interest-rate derivatives before a downturn in US Treasuries left the system with billions of dollars in losses, according to Bloomberg News.
- • Bloomberg previously reported that Chilean pension funds posted losses of about $7.7 billion on interest-rate-related positions, with the most conservative Fund E hit hardest.
- • AFP Association research head Roberto Fuentes Silva attributed the Fund E decline to rising US interest rates.
- • Opposition lawmaker Nelson Venegas called the losses "very serious" and urged tougher measures, while a governing-coalition lawmaker said authorities should first determine whether the AFPs acted within existing rules.
- • Chile's pension regulator had not responded to Reuters' request for comment at the time of publication.
Summary
Executives at Chile's pension fund administrators, known as Administradoras de Fondos de Pensiones (AFPs), privately asked regulators to enforce rules on the accumulation of volatile derivatives before a downturn in US Treasuries left the system with billions of dollars in losses, Bloomberg News reported on Thursday, citing people familiar with the conversations. According to the report, fund managers had flagged the risks of these positions, which have since hit the system's most conservative fund, Fund E, hard. The AFPs oversee five investment funds, ranging from Fund A, the riskiest, to Fund E, the most conservative.
Earlier this week, Bloomberg reported that Chilean pension funds had posted losses of about $7.7 billion on interest-rate-related positions. AFP Association head of research Roberto Fuentes Silva attributed the decline in Fund E to rising US interest rates. Bloomberg also reported that the lucrative nature of the trade meant executives could not act independently without forgoing returns that rivals would continue to collect. Chile's pension regulator did not immediately respond to Reuters' requests for comment.
The losses have drawn political criticism. Opposition Socialist Party lawmaker Nelson Venegas described them as "very serious," accused pension fund managers of putting workers' savings at risk, and called for tougher measures against those responsible. Ximena Ossandón of the right-leaning National Renewal party, which is aligned with the government, said it was too early to draw conclusions and that authorities should first determine whether the investments were made within the permitted framework. The AFP Association has urged contributors to judge performance over the long term, with Fuentes Silva telling local media that "a pension fund does not have losses or gains; rather, it experiences increases or decreases in its valuation."
The episode lands against a longer policy backdrop. Chile's private pension system, which relies solely on worker contributions managed by the AFPs, was established in the early 1980s under the Augusto Pinochet dictatorship. It has long faced criticism for generating relatively low pensions while AFP operators continue to post significant profits. Congress approved a major pension reform in January 2025, with rollout beginning in stages from August of the following year and continuing over several years.
Earlier this week, Bloomberg reported that Chilean pension funds had posted losses of about $7.7 billion on interest-rate-related positions. AFP Association head of research Roberto Fuentes Silva attributed the decline in Fund E to rising US interest rates. Bloomberg also reported that the lucrative nature of the trade meant executives could not act independently without forgoing returns that rivals would continue to collect. Chile's pension regulator did not immediately respond to Reuters' requests for comment.
The losses have drawn political criticism. Opposition Socialist Party lawmaker Nelson Venegas described them as "very serious," accused pension fund managers of putting workers' savings at risk, and called for tougher measures against those responsible. Ximena Ossandón of the right-leaning National Renewal party, which is aligned with the government, said it was too early to draw conclusions and that authorities should first determine whether the investments were made within the permitted framework. The AFP Association has urged contributors to judge performance over the long term, with Fuentes Silva telling local media that "a pension fund does not have losses or gains; rather, it experiences increases or decreases in its valuation."
The episode lands against a longer policy backdrop. Chile's private pension system, which relies solely on worker contributions managed by the AFPs, was established in the early 1980s under the Augusto Pinochet dictatorship. It has long faced criticism for generating relatively low pensions while AFP operators continue to post significant profits. Congress approved a major pension reform in January 2025, with rollout beginning in stages from August of the following year and continuing over several years.
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