Given the changing regulatory environment in Latin America, Funds Global asked lawyer Sebastián Delpiano, from Chile, to cast a light on some recent developments, such as simplification of fund laws and foreign investment rules.
Funds Global: Chile’s investment funds are regulated by four different laws, but the objective is to create one regulation. How is this initiative developing?
Sebastián Delpiano, associate, Guerrero, Olivos, Novoa y Errázuriz: On September 2011, the government sent a bill in relation to fund and individual portfolio management in order to position Chile as an exporter of financial products and services related to portfolio management. Up to this date, there are several laws that govern mutual funds, investment funds and foreign capital investment funds, with different rules and requirements. Therefore, the purpose of the bill is to set forth one set of rules and regulation in order to simplify the management of funds. It is expected that this law will be approved in the second half of this year.
Funds Global: How supportive are regulators in Chile of an asset management industry that services the local population?
SD: Managers and funds that make public offerings are supervised by the Superintendency of Securities and Insurance whose main function is to ensure that they comply with laws, regulations and other provisions applicable to fund managers. Moreover, in the case of managers, given their fiduciary duty, the law requires the necessary guarantees in order to safeguard the interests of the fund’s contributors.
Funds Global: What is the regulatory position regarding pension funds in Chile and their international investments?
SD: Pension funds currently manage more than $150 billion. In the international markets, as of March 30, 2012, the pension funds have invested approximately $58 million, representing 38.6% of their total investments.
The regulatory framework applicable to pension funds is set forth in Decree Law 3.500 of 1980, as amended. Article 45 letter j) identifies the list of foreign securities that are considered eligible.
Furthermore, the so-called Investment Regime, enacted in October 2008, stipulates complementary eligibility requirements, such as minimum trading frequency, and determines the main investment ratios that they shall observe.
Funds Global: How has the eurozone crisis affected investment in Ucits funds?
SD: The current European economic environment has affected the investment of pension fund in Ucits funds. Due to the downgrade in its sovereign rating, the Comisión Clasificadora de Riesgo disapproved last year all Ireland-registered funds as general investment for pension funds.
On September 2010, at the beginning of the crisis, the investment of Chilean pension funds in Irish Ucits funds was $6.3 billion, approximately. Nowadays, this investment has decreased to $159 million, only 2.64% of their previous exposure.
Funds Global: How significant are barriers to entry into Chile for foreign fund providers?
SD: Chile has a capital market open to the world, which means that any foreign asset manager can offer their funds in the country if it complies with the legal rules governing the matter. To this end, some have chosen to sign agreements with local entities for purposes of distributing funds.
Also, given certain legal developments that have taken place, others have even discussed the possibility of establishing themselves in Chile in order to structure local funds and to diversify the product range they offer. Other alternatives have been to register and list foreign mutual funds, closed-ended funds and exchange-traded funds on the Chilean Off-Shore Exchange to publicly offer them.
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