Irish UCITS funds to re-start marketing campaigns in Chile
Managers of Irish UCITS funds are likely to re-start their marketing efforts in Chile, home to some of Latin America’s most sophisticated pension plans, following an 18 month hiatus.
Irish UCITS were put on a restricted investments list in August 2011 by the Comision Clasificadora de Riesgo (CCR), the Chilean pensions’ regulator, following the downgrade of Irish sovereign debt to junk status.
While CCR rules state Chilean pensions can only invest in funds domiciled in jurisdictions which possess an ‘A’ credit rating from at least two of the major rating agencies, the regulator said it was prepared to consider Ireland as a suitable fund jurisdiction once it was rated BBB or higher by all three credit rating agencies.
Ireland’s exit from the EU and IMF-backed bail-out and the decision by Moody’s to follow Fitch and Standard & Poor’s decision to upgrade Irish sovereign debt to investment grade status should help enable Irish UCITS to once again tap Chilean pension capital, according to Dechert.
“The restrictions on Chilean investments in Irish UCITS did put the Irish industry at a competitive disadvantage to other UCITS domiciles such as Luxembourg. The news that the major credit rating agencies have upgraded Irish sovereign debt will help Irish UCITS once again restart their applications to register as UCITS in Chile and target Chilean pensions , which are a significant source of investor capital,” said Declan O’Sullivan, partner at Dechert in Dublin.
Chile’s pension system – the Administradoras de Fondos de Pensiones (AFPs) - is one of the most sophisticated in Latin America and comprises of six funds. Employers and employees are required by law to contribute to these schemes, which collectively manage $170 billion in assets. Unlike many emerging market pension regimes, AFPs are not restricted from investing abroad. In fact, AFPs are theoretically permitted to invest up to 80% of their assets abroad although in reality this figure stands at 40%, or roughly $70 billion.
“Chile’s pension market is very sizeable and advanced and indications that Irish UCITS may once again market to these investors is a very positive development,” said O’ Sullivan.