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Latin America is an increasingly complex and sophisticated market for asset managers.

ACAFI welcomes new alternatives regulations, but still sees pending issues

The president of the Chilean Association of Investment Fund Managers (ACAFI), Luis Alberto Letelier, met with the association’s members to analyze the new Investment Scheme for Pension Funds, in operation since November 1.

The meeting analyzed the impact the regulations will have on the local closed-end investment fund industry, particularly on the alternative-asset segment, since cross-border products can now be purchased directly by AFPs without having to use local feeder structures, the mainstay of ACAFI members.

“The major requirements for investing indirectly (in alternatives) are development of an investment- and risk-management policy, and approval of the foreign fund manager by the Risk Rating Commission (CCR) , either to invest or to co-invest in the funds,” Letelier said.

The ACAFI president also cautioned that there were still important issues pending in the regulations, such as the situation of national private debt securities, as well as real estate and leasing funds; clarification of the definition of “Hedge Funds,” given the uncertainty caused by the fact that the CCR determines that some foreign mutual funds have investment policies resembling hedge funds; and, finally, resolving the uncertainties surrounding “brokerage fees.”

Letelier said there were still some aspects of the regulations that needed to be improved in the long term, such as the review of the limits for alternative assets by the Central Bank, especially for investments that would qualify as equity, and including Private Investment Funds (FIP) in alternative assets, critical for development of the Venture Capital industry and local Private Equity.

Fund Pro Latin America consulted ACAFI about the industry’s outstanding growth in recent years, increasing from just over USD 10 billion AUM at the end of 2013 to almost USD 18 billion at the end of 2016, a period of “capital repatriation,” during which Chilean citizens could voluntarily report foreign assets or income, and pay a one-time tax of 8%.

According to some market players, this mechanism allowed local reinvestment of resources previously held abroad, which especially benefited the investment fund industry.

However, in ACAFI’s view, repatriation has not been a driver of growth for the industry. “The good results are due to the presence of managers and players specialized in the fund industry, which have a solid institutional platform for local and foreign savers and investors. This advantage was accompanied by positive returns and implementation of the Unified Fund Law (LUF),” Letelier argued.

“During recent years, closed-end investment funds have become established as an optimal saving and investment vehicle for all asset classes, particularly the most specialized, with an excellent track record. At the same time, they have contributed to the country’s growth and development of the capital market, with potential to export financial services and diversify Chile’s exporting matrix.”

Finally, ACAFI was positive about the mechanism known as funds passport, approved a few weeks ago in Colombia, and pending validation in Mexico and Peru the other two MILA member countries, although its impact on closed-end funds was limited.

“This regulatory change expands the potential market for redeemable funds by opening the opportunity for them to be sold in Peru, Mexico and Colombia under the funds passport, without the need for the approval of the authorities of each of these countries. The measure is a move toward the financial integration of the region,” said Letelier.