Actively managed ETFs could be approved by the CCR in Chile

According to Felipe Cousiño, director of insurance, capital markets, mutual funds and investment funds at Alessandri, Chile’s Risk Classification Commission (CCR) may be reviewing its previous position on actively managed Exchange-Traded Funds (ETFs) and consider them eligible for approval.

This is an important development given that hitherto the only types of ETFs that could qualify for the General Investment Investment Category of Chilean pension funds were passive ETFs.

To date the CCR had taken the position that the pension fund statute (DL3500) and regulations did not permit it to approve actively managed ETFs, only passive ETFs. The reason given for this position was the way in which the DL3500 refers to ETFs within the list of types of instruments that may be eligible investments for Chilean pension funds. Indeed,  DL3500 refers to ETFs by describing them as "instruments that represent an index". This reference had led the CCR to consider that only ETFs that actually tracked an index (i.e. passively managed ETFs) could qualify as eligible instruments and therefore be approved by the CCR for the general investment category of Chilean pension funds.

However, this has changed since the pension regulator (Superintendencia de Pensiones – "SP")) issued an opinion letter (Oficio 6383 of 2022)  in response to a query from one of the pension fund managers (AFPs) in relation to the application of the rule on Total Expense Ratio (TER) caps for ETFs, requesting that a distinction be made between actively managed and passive ETFs. The response from the SP was that the relevant regulations, i.e. the Penson Fund Investment Regime (IR) does not restrict the definition of "instruments that represent indices" (i.e. ETFs) to those that follow passive strategies. Indeed, section 3 of Annex 2 of the IR states:

"Section 3. Instrument that represents financial indices": financial instrument listed in exchanges, backed by a basket of assets such as shares, fixed income, from which it derives its value, and that generally follow the performance of a financial index".

The SP went on to say that the data base used by the regulators for the purpose of fixing the maximum TER includes both passive as well as active ETFs.  

This opinion from the SP opens the door for the CCR to now also consider applications for actively managed ETFs. This is an important development given that hitherto the only types of ETFs that could qualify for the general investment category of Chilean pension funds were passive ETFs.