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Investment Policy

This section describes the main features of the new Pension Reserve Fund (PRF)’s investment policy which was approved on November 2017. The gradual convergence process towards the strategic asset allocation began in 2018 and should be completed in early 2021.

In addition, the investment guidelines are made available to the public. The guidelines provide information on the objectives, limits, and risk parameters which are defined by the Ministry of Finance with the advice of the Financial Committee (FC), and are used by the Central Bank of Chile and the external managers for the management of the fund. 

Investment Objectives: The PRF’s main investment objective is to generate resources to finance part of the fiscal pension liabilities. To this end, the new investment policy has a specific objective of achieving an expected annualized return in pesos of at least 2% over Chilean inflation in a ten-year period, with a probability of at least 60%. The new risk tolerance, establishes that the probability that the fund’s real return be less than –12%, expressed in pesos, must not be over 5% in any year. Given the size and timing of the liabilities it is designed to finance, the PRF has a medium to long-term investment horizon.

Strategic asset allocation: The asset allocation, expected to be completed at the beginning of 2021, stipulates that 40% of the portfolio must be invested in Equities, 23% in Sovereign and Government-Related Bonds, 13% in Corporate Bonds, 8% in High-Yield bonds, 6% in Mortgage-Backed Securities issued by U.S. Agencies (US Agency MBS), 5% in unlisted Real Estate assets and 5% in Inflation-indexed Bonds. Additionally, the currency exposure in the fixed-income portfolio will be gradually hedged to Chilean pesos.

Benchmarks: A benchmark has been defined for the each asset class in the strategic asset allocation which is a representative index of the respective market.

Asset classPercent of totalBenchmarks
Equities  40% MSCI All Country World Index ex Chile (USD unhedged, with reinvested dividends)
Sovereign and Government-Related Bonds (a) 23% Bloomberg Barclays Global Aggregate: Treasuries Index (USD unhedged)
Bloomberg Barclays Global Aggregate: Government-Related Index (USD unhedged)
Corporate Bonds 13% Bloomberg Barclays Global Aggregate Corporates Index (USD unhedged)
High Yield Bonds 8% Bloomberg Barclays Global High Yield Index  (USD unhedged)
US Agency MBS 6% Bloomberg Barclays US Mortgage Backed Securities Index 
Real Estate 5% (b)
Inflation-indexed Sovereign Bonds (real) 5% Bloomberg Barclays Global Inflation-Linked Index (USD unhedged)

(a) Each sub index of this asset class is aggregated accordingly to its relative capitalization.                  

(b) To be defined.  

Implementation of the new investment policy: As mentioned before, the new investment policy will be implemented gradually, over a period of approximately three years, until achieving the new strategic asset allocation. Specifically, the share of Equities began to be gradually increased in 2018 in order to reach 40% in early 2021.These increases will be compensated mainly by reducing the fixed-income exposure (mainly sovereign). In addition, the fund has been investing in High Yield Bonds and US Agencies MBS since January 2019, reaching the targets defined for these assets in the new investment policy. Also, investment in Real Estate is expected to take place in early 2020. Finally, the FC will recommend the way in which the currency overlay strategy would be implemented.

Investment Policy Implementation Plan*

Sovereign and Government- Related Bonds

Inflation- Indexed Sovereign Bonds

Corporate Bonds


US  Agency MBS

High Yield Bonds

Real Estate


December-2017 48 17 20 15 0 0 0 100
June-2018 44 17 20 19 0 0 0 100


39 11 13 23 6 8 0 100
June-2019 35 11 13 27 6 8 0 100
January-2020 32 5 13 31 6 8 5 100
June-2020 28 5 13 35 6 8 5 100
January-2021 23 5 13 40 6 8 5 100
*Current plan but there may be modifications in the future.

Administration: The Central Bank of Chile, as fiscal agent, manages the Sovereign Bonds and Inflation-linked Bonds portfolios. Equity, Corporate Bonds, US Agency MBS, and High Yield Bonds portfolios are externally managed by asset managers hired by the Central Bank of Chile through a bidding process.

Ex-ante tracking error limit: The limit for tracking error ex ante is 50 basis points for the aggregated portfolio of Sovereign Bonds, Government-Related Bonds and Inflation-linked Bonds, 60 basis points for Equities, 50 basis points for Corporate Bonds and 150 basis points for High Yield Bonds. For the US Agency MBS portfolio, the monthly average is required be less than 20 basis points and the daily tracking error ex-ante must not exceed 30 basis points in any day.

Investment guidelines: The investment guidelines, which are published in this section, provide more information about the Pension Reserve Fund’s investment policy, such as instruments and issuers eligible for investment, use of derivatives and leverage as well as other relevant limits, among other aspects related to the fund’s management.

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