With Industry in Crosshairs, Chile Pension Fund Downplays Risks

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Chile’s politicians are threatening to kill his business, but one of Latin America’s biggest fund managers is sticking to his bullish outlook for the country’s markets.

Ignacio Calle, chief executive officer at Bogota-based Sura Asset Management, which runs Chile’s third-largest private pension fund, says the calls from opposition presidential candidates to dismantle the retirement system are unlikely to go anywhere. And investors have been too pessimistic on the country, he says, with plenty of opportunities ready to be scooped up.

“We have a very positive view for Chile’s future,” Calle said in an interview. “Conditions for foreign investors are good.”

It’s a surprisingly optimistic take on a country that was once considered the epitome of stability and good governance in Latin America, but has become more volatile amid social unrest over inequality and poor services. Markets have underperformed developing-nation peers recently amid the prospect of a left-wing candidate winning the presidency, angst about the rewriting of the constitution and after $49 billion of early pension withdrawals allowed under pandemic relief measures reduced the accounts’ holdings by at least 20%. 


Investment banks are divided on what the risks are for Chile’s equity markets. Strategists at Bank of America Corp. and UBS Group AG cut holdings of the country’s stocks, citing rising political uncertainties, while JPMorgan Chase & Co. remains neutral. Santiago-based LarrainVial said the market has already priced in Chile’s institutional fragility, while BTG Pactual is overweight as risks are embedded in current valuations.

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The S&P IPSA equity benchmark has lost 6.9% over the past three months in dollar terms, among the world’s 10 worst performances during that span. The peso has weakened 8% in three months, making it the worst performer among 31 major currencies. Yields on peso-denominated bonds due in 2030 have increased almost 150 basis points since June.

Calle thinks much of the angst is overblown. Markets have continued to function in many countries despite social unrest or left-wing governments, Calle points out. 

And while several presidential candidates, including Gabriel Boric, the front-runner for November’s election, have said they want to replace the country’s private pensions with a state-run system, Calle thinks the idea won’t go anywhere. It would be practically impossible given the heavy fiscal and tax burdens required for the state to take over responsibility, according to Calle.

“Many times candidates are very aggressive during their electoral campaigns, but tend to moderate their speeches once they reach the presidency,” he said. 

Across the region, Sura has about $147 billion in assets under management in Chile, Argentina, Colombia, Mexico, Peru, Uruguay, and El Salvador, and hopes to end the year with as much as $162 billion, Calle said. Three-fourths of those assets correspond to Sura’s pension operations in the region, with the rest at its wealth management and investment operations.

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In anticipation of rate hikes, Sura this year shifted its portfolios away from fixed income and is overweighting equities in Chile, Mexico and Colombia. Some Chilean and Colombian stocks had been excessively punished even before the pandemic, Calle said. 

Sura is also increasing allocation to alternative assets such as private equity, private debt, infrastructure and real estate investments, with a goal of increasing their weight to 15% from 7% today, Calle said. Its private equity portfolio should increase by 50% to $15 billion by 2025.

The company is also increasing its offering of real estate funds in Chile, Colombia and Peru to 20 by year-end from 15 today, and should add Mexican real estate funds soon. Calle expects pension funds will remain an important client of its infrastructure funds as they seek options in a world of diminishing returns.

And Sura’s own pension fund will be around for that, he says.

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