Chilean pension funds are facing billions in losses after making large bets on U.S. interest rates, prompting calls for greater oversight. Before the blowup, executives at the funds privately urged regulators to step in and implement rules to limit risky derivatives trading, according to people familiar with the conversations. The trades had been so profitable that fund managers feared underperforming rivals, who continued to profit from the strategy.
The losses have sparked outrage among lawmakers and anxiety among retirees, many of whom contributed mandatory savings to the $230 billion industry. A surge in U.S. borrowing costs led to a sharp reversal, with foreign interest-rate derivative positions at the AFPs swinging from a $2.1 billion gain in December to a negative $7.7 billion by September.
The most conservative funds, known as E funds designed for those nearing retirement, were among the hardest hit, losing an average of 10.4% this year, including a 4.9% drop in September. Fund D, where most near-retirees are invested, lost 4.2% that month.
Regulators now face pressure over their delayed response, as funds prepare to comply with new derivatives limits by an early-November deadline. Those still above the caps will be forced to sell and lock in losses. Margarita Saldía, 57, a public-sector employee, said she may delay her retirement after watching her account values decline.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing