Chile's privately run pension funds, the AFPs, spent the past two years building sizable positions tied to US interest rates, effectively counting on yields to keep declining. That worked at first. Then a global bond slump this year sent US yields sharply higher, flipping earlier gains into steep losses.
By September, the market value of the AFPs' overseas rate derivative book sat at a $7.7 billion loss, compared with a $1.4 billion gain a year earlier. Most of the receiving positions are concentrated in the E funds, the option marketed as the lowest risk for people nearing retirement.
In April, the pensions regulator introduced new caps on derivative risk and set a Nov. 4 deadline to get exposures within the rules. Because yields kept rising, reducing exposure proved expensive, as the rate increases worsened the mark-to-market losses on those contracts. According to the regulator, managers received additional time to adjust and have already cut a large portion of the surplus positions.
Socialist deputy Daniel Manouchehri said Congress intends to question the pensions regulator about the oversight it exercised and the scale of potential losses, and will ask the Comptroller General to examine whether the regulator's actions complied with the law. "We need to investigate how these instruments were taken on," he said Wednesday. "Workers' pension savings cannot be managed freely or gambled away as if they were casino bets." Independent lawmaker Jaime Araya added, "Workers have a right to know what happened to their money, how much was lost and who is responsible." The pensions regulator did not immediately respond to a request for comment.
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