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Summary of Chile's Private Pension Fund Strategy - January 2018 Update

Core Content

This report provides an analysis of the portfolio changes and asset under management (AUM) trends in Chile's private pension funds (AFP) for January 2018, highlighting shifts in investment allocation and performance across different fund profiles.

Key Findings

• AUM Growth:

  • Chile's private pension funds had the highest AUM increase since March 2017, reaching CLP 133trn (USD 221bn) in January 2018.
  • Total AUM increased by 13% (USD 25.2bn) compared to January 2017.

• Equity Holdings:

  • Foreign equity holdings increased by 5% (USD 3.1bn), representing 30% of total AUM.
  • Local equity holdings also rose by 5% (USD 0.7bn), making up 12% of total AUM.
  • Combined local and foreign equity holdings increased by 40% (USD 26.2bn) from a year ago.
  • Equities now account for 42% of total AUM, up from 34% in January 2017.

• Fixed Income Holdings:

  • Local fixed income decreased by 1%, while foreign fixed income increased by 7%.
  • Fixed income now represents 58% of total AUM, down from 66% in January 2017.
  • The share of local fixed income dropped to 44%, while foreign fixed income rose to 14%.

• Fund Profile Changes:

  • Type A (riskiest) saw the largest AUM increase of 7.3% (USD 2.4bn), driven by 4% profitability in January.
  • Type E (most conservative) had the greatest reduction, decreasing by 4.1% (USD 1.3bn).
  • Compared to January 2017, Type E AUM fell by 27% (USD 6.8bn), while Type A AUM rose by 53% (USD 7.5bn).

• Portfolio Rebalancing:

  • The overall trend indicates a shift towards riskier profiles, with increased exposure to equities and foreign fixed income.
  • This shift is attributed to the end of the easing cycle in Chile and the ongoing reallocation strategy by AFPs.

Investment Implications

• The increase in equity holdings, especially foreign equities, suggests a more aggressive investment approach by AFPs.
• The reduction in local fixed income and increase in foreign fixed income reflects a global diversification strategy.
• The report highlights the impact of AFP reallocations on CLP interest rates, with a decrease in local fixed income leading to upward pressure on CLP rates.

Contacts

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Legal and Regulatory Notice

• This document is non-independent research and is considered a marketing communication under MiFID II.
• It is intended for Relevant Persons as defined under MiFID II and related regulations.
• The document does not constitute investment research and is not subject to the independence requirements of investment research.
• BNPP may have conflicts of interest and may engage in transactions that are inconsistent with the views expressed in the report.
• The information is for informational purposes only and not intended as advice.
• The performance data included is simulated or based on historical data and not indicative of future results.
• The document may contain "Research" as defined under MiFID II unbundling rules and is only available to certain clients.

Disclaimer

• BNPP does not offer investment, financial, legal, or tax advice.
• The information may be subject to change without notice.
• The indicative prices are based on internal models and may not reflect actual market terms.
• No liability is accepted for any loss resulting from the use of this document.
• The document is confidential and may not be copied, reproduced, or distributed without prior written consent.