Santiago Principles Self-Assessment

Economic and Social Stabilization, and Pension Reserve Funds

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  • Pillar 1: Legal
  • Pillar 2: Institutional
  • Pillar 3: Investment
Principle 1

1. The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).

1.1. The legal framework for the SWF should ensure legal soundness of the SWF and its transactions.

1.2. The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and other state bodies, should be publicly disclosed.

The institutional framework for Chile’s SWFs is established in a number of laws and decrees that define the rules for their operation. The most important piece of legislation is the Fiscal Responsibility Law (FRL) which sets out the norms and institutional framework for the saving and management of fiscal resources. The FRL created the Pension Reserve Fund (PRF) and permitted the creation of the Economic and Social Stabilization Fund (ESSF) which was officially established under Decree with Force of Law (DFL) Nº 1 issued by the Finance Ministry in 2006. The FRL also specifies that the Finance Ministry will define the SWFs’ investment policies with the advice of a Financial Committee and may entrust their management to the Central Bank of Chile (CBC).

The uses to which the two funds may be put are defined in the FRL, DFL Nº 1 and the Law 20.255 of 2008 (Pension Law). Withdrawals must be authorised by decree by the Finance Minister, are implemented by the CBC and the General Treasury of the Republic (GTR) and are subject to review by the Comptroller General’s Office (CGR). Supreme Decree N° 1.383, issued by the Finance Ministry in 2006, delegated the administration of the two funds to the CBC, as Fiscal Agent, and established the general framework for their management. This Decree was modified in 2013 with a view to reducing the CBC’s responsibility regarding the supervision and monitoring of the equity and corporate bonds portfolios managed by external managers. Since 2014 the relationship with the external managers is held by the Finance Ministry, who is also responsible for their oversight. Supreme Decree N° 621, issued by the Finance Ministry in 2007, created the Financial Committee to advise the Finance Minister on all aspects related to the funds’ investment policy definition. As a result, the legal framework for Chile’s SWFs rests on sound foundations and is publicly disclosed, favouring efficient funds operations and facilitating achievement of the objectives for which they were created. These laws and decrees were published in the Diario Oficial (Official Gazette) and are available on the SWF website at

Principle 6

6. The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.

The clear division of roles and responsibilities established by the funds’ legal framework facilitates accountability and operational independence in their management. The FRL specifies that the funds are the property of the State of Chile and that the GTR is the bearer of the resources. Under this law, the Finance Minister is responsible for deciding how the funds are managed and their investment policies.

In defining their investment policies, the Finance Minister is supported by a Financial Committee which provides advice on the aspects related to this decision. The Finance Ministry draws up investment guidelines defining the eligible instruments and issuers as well as other matters such as investment limits and the use of derivatives.

The CBC is responsible for investing the sovereign fixed income portfolios (which also includes bank deposits in the case of the ESSF) of the funds. The external managers are responsible for investing the equities and corporate bonds portfolios (if applicable). The CBC and the external managers invest the funds’ resources with complete independence in accordance with the instructions and restrictions established by the Finance Ministry in their investment guidelines.

The custodian bank, hired by the CBC on behalf of the government, is responsible for custody of securities and also provides a number of middle-office services such as monitoring compliance with investment limits, calculating each manager’s performance and preparing financial and accounting reports on the funds.

Finance Ministry staff monitors the CBC’s and external managers’ performance and investment strategy using information provided by the custodian bank and by the managers themselves, and prepares monthly, quarterly and annual reports on the basis of information provided by the custodian bank. In addition, Finance Ministry’s staff acts as the Financial Committee’s Secretariat and provides support in all tasks related to the funds’ investment policies.

The GTR is responsible for the funds’ accounting, for preparing their audited financial statements, and for their incorporation into Chile’s national accounts. As of April 2014, GTR is also responsible for monitoring compliance with the funds’ investment guidelines, validating external managers’ fees, and other back office tasks. The Finance Ministry’s Budget Office is responsible for aspects of the SWFs related to the budget such as contributions and withdrawals.

Principle 18

18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.

18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.

18.2. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.

18.3. A description of the investment policy of the SWF should be publicly disclosed.

The investment policies in force for the ESSF and PRF are consistent with their objectives and risk tolerances. A description of the funds’ objectives and investment policies are included in the annual report of the funds. Also, the investment guidelines are available on the funds' website in Spanish and English.

The financial risks to which each fund is exposed are determined by its investment policy. Given their essentially passive management, these risks depend principally on their strategic portfolios and benchmarks. As of today, the use of leverage is not permitted while the use of derivatives is permitted only for currency hedging purposes or for gaining exposure to some part of the benchmark. At present, the funds’ operational management is in the hands of the CBC and the external managers, and it’s supervised by the custodian bank, the Finance Ministry and the GTR. In general, external managers shall be hired through a selection process carried out by the CBC, according to its internal policies and procedures. Up to now, external managers have only been used for those asset classes where the CBC lacks the expertise. The scope of external managers’ responsibilities and activities is set forth in the corresponding investment guidelines as well as their monitoring by the custodian bank, the Finance Ministry and the GTR.