The Financial Committee (FC) met for the first time this year on Wednesday, January 23rd, 2019. In this opportunity, the FC was informed about the progress in the implementation of the investment policy for the Pension Reserve Fund (PRF), which was approved by the Ministry of Finance in November 2017.
In particular, the FC learned that resources were transferred to the High Yield Bonds and US Agencies MBS managers on January 22nd, 2019 in order for these two asset classes to represent 8% and 6% of the fund, respectively. It is important to mention that these external managers were hired after a selection process carried out by the Central Bank of Chile (CBC) during 2018. Additionally, the FC was informed that the equities exposure was increased in order for this asset class to represent 23% of the fund by the end of January 2019. This increment was done according to the implementation plan recommended by the FC in 2018, which contemplates gradual increments to the equity exposure until reaching 40% of the fund at the beginning of 2021.
Also, FC members analyzed possible alternatives for investing part of the PRF in Real Estate (core) globally. In addition, the FC preliminarily discussed proposals regarding how the currency overlay strategy could be implemented. These proposals were provided by the consulting firm, RVK, Inc.
The Technical Secretariat reported on the status of the new investment policy study for the Economic and Social Stabilization Fund (ESSF). In this regard, the Ministry of Finance decided to first carry out a study on the fiscal dimension of the fund. After improving the understanding of the fiscal implications on the ESSF over time, the investment policy will be commissioned to a consulting firm. The FC agreed with this proposal.
The FC members met with a delegation from JP Morgan –the Sovereign Wealth Funds’ custodian bank- with a view of deepening the analysis of the methodology used to calculate a risk indicator (tracking error ex-ante) which is used to limit the flexibility that external managers have to invest the Sovereign Wealth Funds’ resources. The FC appreciated the work done by JP Morgan and requested additional information to deepen in the understanding of this indicator.
Members of the Budget Office (Dipres) presented their views on the impact that the pension reform bill is expected to have on the PRF. After the presentation, the FC recommended to maintain the implementation of the new strategic investment policy. Notwithstanding the above, the FC suggested to review said policy in the future in accordance with the frequency that the FC has agreed for such effects.
FC members analyzed the state of the Sovereign Wealth Funds and the results in 2018 as well as managers’ performance and main exposures.
Finally, the FC agreed on the schedule detailing the different phases that will be required for the preparation of its Annual Report 2018. This report describes the main activities carried out by the FC during past year. The FC Annual Report, according to the current legislation, must be delivered each year (during the second half of April) to the Minister of Finance and to the Finance Commissions of the Senate and the House of Representatives and to the Joint Budget Commission.
The FC—an external, independent committee—is made up of the following six experienced professionals and experts: Jose De Gregorio (Chairman), Cristian Eyzaguirre (Vice Chair), Ricardo Budinich, Jaime Casassus, Martín Costabal and Paulina Yazigi.