New Maximum TERs for Chilean Pension Fund investments: most drop

The regulators have published for comment the new Maximum TERs for Chilean Pension Fund investments. Most drop for the period July 1, 2021 to June 30, 2022.

On June 17, 2021 the Chilean securities, banking and insurance regulator (Comisión Para El Mercado Financiero – "CMF") published for comment the proposed new annual rule whereby it jointly sets with the  Chilean pension regulator (Superintendencia de Pensiones– "SP") the maximum fees and expenses ("Max TER") that may be borne by Chilean pension funds. The excess over such Max TER must be borne by the pension fund managers ("AFPs").

The main changes proposed by the regulators can be summarized as follows:

1.-        The  Max TERs will, for the most part, be lower than  for the previous period. On average, according to the CMF, there is a 10 basis points reduction in fees for mutual funds and a 3 basis points drop for ETFs. In the case of alternative assets, the CMF estimates that the Max TERs  increased on average by  9 basis points. However, the proposal contemplates reducing fees for private equity and private debt (except funds of funds) to 2.08%  (down from 2.18%) and  2.06% (down from 2.11%), respectively.

2.-        The proposed regulation makes an effort to provide a better definition of the denominator of the TER  for private equity and private debt funds by specifying that "invested capital" shall mean the portfolio investments plus distributed and non-recallable investments.  Furthermore, the proposed regulation allows to alternatively use the concept "ending NAV-Net of Incentive Allocation" taken from the Institutional Limited Partner Association (ILPA) reports, instead of "invested capital".

In the case of ETFs, the regulators have excluded non USA ETFs from the data base used to calculate the Max TER. The regulators have now used the "United States Exchange Traded Funds" data base given that they consider that it provides a sufficiently robust market reference.
As to Gold ETFs/ETPs the regulators decided to use this year the Morningstar Direct: Global Exchange Traded Funds data base, instead of Bloomberg, given that, in their view, the former is more robust in relation to this asset class.
The statistical methodology used to calculate the Max TER contemplates using the 75th percentile of the TERs of each category of funds, except in the case of alternative asset funds, such as private equity, private debt, real estate and infrastructure funds (though the regulator pointed out it did not find infrastructure funds in the relevant data base) as well as Gold ETPs, for which the 90th percentile of the TERs was used (which is consistent with what the regulators did last year).

Felipe Cousiño
Alessandri partner