Oct 16 (Reuters) – Executives at Chile’s pension funds appealed to regulators for curbs on volatile interest-rate derivatives before a downturn in US Treasuries left them with billions of dollars in losses, Bloomberg News reported on Thursday.
The report said that fund managers had flagged risks of positions that have since hit the system’s most conservative fund hard. The losses have drawn criticism from some lawmakers and raised concerns among pensioners.
Chile’s private pension system is managed by firms known as Administradoras de Fondos de Pensiones (AFPs), or pension fund administrators, which oversee five investment funds ranging from Fund A, the riskiest, to Fund E, the most conservative.
Earlier this week, the AFP Association’s head of research, Roberto Fuentes Silva, attributed a decline in Fund E to rising US interest rates after Bloomberg reported that Chilean pension funds had posted losses of about $7.7 billion on interest-rate-related positions.
Executives managing these pension funds had asked regulators in private conversations to enforce rules on the stockpiling of volatile derivatives, Bloomberg’s Thursday report said, citing people familiar with the conversations.
The lucrative nature of the trade meant the executives could not act independently without forgoing returns that rivals would continue to cash in, the report added.
Chile’s pension regulator did not immediately respond to Reuters’ requests for comment.
Chilean lawmaker Nelson Venegas from the opposition Socialist Party described the AFP losses as “very serious,” accusing pension fund managers of putting workers’ savings at risk and calling for tougher measures against those responsible.
Ximena Ossandón, a lawmaker from the right-leaning National Renewal party aligned with the government, said it was too early to draw conclusions and that authorities should first determine whether the AFPs had acted within existing regulations.
“We should wait to determine whether the investments were made within the permitted framework or not,” Ossandón said in a statement.
The AFP Association has sought to reassure contributors, saying in a statement that pension fund performance should be assessed over the long term rather than based on short-term market fluctuations.
“A pension fund does not have losses or gains; rather, it experiences increases or decreases in its valuation,” Fuentes Silva told local media.
Chile’s current private pension system started in the early 1980s during the Augusto Pinochet dictatorship and relies solely on worker contributions managed by the AFPs.
The system has long faced criticism for generating relatively low pensions while AFP operators continue to post significant profits. After years of political debate, Congress approved a major pension reform in January 2025, with the rollout beginning in stages from August last year and continuing over several years.
(Reporting by Lucinda Elliott, Fabian Cambero and Utkarsh Shetti, Editing by Xevi Fontdegloria)
