Andean pensions: Power to the people

Sep 25, 2013

Expanding much faster than GDP, retirement funds in Chile, Colombia and Peru have reached a size that makes them major movers of domestic markets. Regulators are starting to take notice

By Katie Llanos-Small

If ever proof was needed that past performance is no guide to future returns, the performance of Chile’s pension funds provides it.

Yields on the most aggressive investment funds have plummeted. And when Chileans woke up to the fact that the most conservative pension fund buckets had also become the best performers, they did the logical thing and switched their savings. Pension savers moved 5.5 trillion pesos ($10 billion) into the safest allocation strategies, known as Type E buckets. The size of these funds doubled in little more than a year.

In response, Chile’s local markets shuddered.

The Type E funds — which, by regulatory design, must invest the bulk of their assets in government securities — struggled to deploy the incoming cash. Yields there fell and those already subscribed to the Type E funds felt...

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