This section describes the main elements of the Pension Reserve Fund (PRF) investment policy.

The investment guidelines that specify the objectives, limits, and risk parameters, determined by the Ministry, with support from the Financial Committee, are made available to the public below. These guidelines are used by the Central Bank of Chile and by the external managers of the fund.

Long Term Investment Portfolio (LTIP)(1)

Investment objectives: the main objective of the Pension Reserve Fund is to complement the financing of fiscal obligations related to pensions and social security, including the Universal Guaranteed Pension, basic disability pensions and solidarity disability pension contributions. To this end, the investment policy seeks to preserve the real value of the fund’s resources and generate returns appropriate for its long-term investment horizon, while maintaining prudent management of financial risks. Investments must be managed with a view to ensuring that the level of risk assumed is reasonable and consistent with the nature, objectives and time horizon of the portfolio.

Strategic asset allocation: The portfolio allocation is 48.5% in Equities, 3% in Equity Low Carbon, 19.5% in Sovereign and government-related bonds from developed markets, 9% in Corporate bonds, 6% in High yield corporate bonds, 3% in Emerging market sovereign debt denominated in U.S. dollars, 3% in U.S. Agency Mortgage Backed Securities (MBS), and 8% in Inflation-indexed sovereign bonds.

Benchmarks: for each component of the strategic asset allocation, a benchmark has been defined, which corresponds to a representative index of the respective market:

Administration: the Sovereign and government related bond portfolio and the Inflation-indexed sovereign bonds portfolio are managed directly by the Central Bank of Chile, as fiscal agent. The portfolios of Equities, Corporate bonds, High yield bonds, and U.S. Agency MBS are managed by external managers hired by the Central Bank of Chile through a selection process.

Tracking error (ex-ante) limit: an ex-ante tracking error limit of 50 basis points has been defined for the aggregate portfolio of Sovereign and government related bonds from developed markets and Inflation-indexed sovereign bonds, of 60 basis points for Equities and Equity Low Carbon, of 50 basis points for Corporate bonds, of 150 basis points for High yield corporate bonds, and of 400 basis points for Emerging market sovereign debt denominated in U.S. dollars. In the case of U.S. agency MBS, it is required that the average for the month be no more than 20 basis points and, also that it does not exceed 30 basis points on a daily basis.

(1) The PRF was broken-down into two sub-portfolios between October 1, 2020 and June 8, 2021 t. The first, the Short-Term Investment Portfolio (STIP), existed only during the indicated period and held the resources that would be withdrawn from the fund during 2021. Said portfolio ceased to exist once the withdrawals from the fund were made during 2021. The second, the Long-Term Investment Portfolio (LTIP), has the strategic asset allocation that is described in this section and is the same that the FRP had before the creation of the STIP.