Chile Pension Reserve Fund

Chile Pension Reserve Fund

Chile US$ 5.9 Billion
Established: 2006
Transparency Rating: 10
View Sovereign Fund Transaction Data
View Asset Allocation		 Origin: Copper
Firm Investment Style: Index
Entity Structure: Fund
Population Est.: 17.2 million – 2013
Wealth Per Capita Est.: $343
Summary
The Pension Reserve Fund (PRF) was established on December 28, 2006 with an initial contribution of US$ 604.5 million.

Background
The Copper Stabilization Fund was created in 1985 and in 2006 Chile passed the Fiscal Responsibility Law which involved the creation of two new sovereign wealth funds. The first of these is the Pension Reserve Fund (PRF) which is essentially a Savings Fund (no withdrawals are allowed to be made from the fund for a minimum of ten years). This fund receives between 0.2% and 0.5% of GDP depending on the size of Chile’s overall budget surplus each year, and initially received a one-off sum of $600 million in 2006 to kick-start the fund.

It was set up in response to Chile’s new demographic scenario characterized by an increase in life expectancy and the growth of senior citizen population, adding on yet another challenge for the Government in terms of greater future retirement expenditures and the need to guarantee basic solidarity pensions to those who were not able to save enough for their retirement.

 Strategy & Objectives
The aim of the Pension Reserve Fund is to address an expected future government pension liability shortfall. As a Savings Fund, it takes a longer-term view and has the responsibility of enabling a transfer of wealth from one generation to the next for the purpose of future sustainability. This means it has a higher risk profile and can invest in a broader range of asset classes.

Governance
The central bank (which is independent), appoints members of a Financial Committee. This committee is responsible for making investment decisions and for the day-to-day running of the sovereign wealth fund. The Financial Committee reports to the Finance Minister who in turn reports to the President. While the SWF does not report directly to the legislative, the fund nevertheless receives its revenues from the overall budget that is discussed and decided by the legislative. This ensures an acceptable level of good governance.

*The Chilean sovereign wealth funds were historically aggregated into one profile.

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