Chile’s CCR Opens the Door to the Approval of Irish Retail Investor Alternative Investment Funds

Felipe Cousiño - Francisca Donoso,  May 24, 2024

Alessandri - On the occasion of the recent application for approval by the Comisión Clasificadora de Riesgo (CCR)  of the first Retail Investor Alternative Investment Fund (RIAIF) authorized by the Central Bank of Ireland, the CCR amended the criteria for approval of foreign closed-end investment funds as eligible investments for Chilean pension funds (AFPs), allowing for up to 20% of their assets to be invested in alternative assets and introducing criteria of dispersion of ownership (i.e. to determine acceptable levels of shareholder concentration) of fund shares and minimum number of participants, similar to those applied until today only to foreign mutual funds.

Thus, during the months of March 2024 and May 2024, two resolutions of the CCR were published, adopted at its meetings in February and April of this year, modifying Resolution No. 32 (the Resolution), regarding the procedures for approval of foreign instruments.

The first of these resolutions was adopted at the 499th regular meeting of the CCR, held on February 22nd, 2024, by means of which amendments were made to Articles 20 and 24 of the Resolution, in order to establish differentiated criteria for the dispersion of fund share ownership (i.e. maximum shareholder concentration) for mutual funds and closed-ended funds, taking into account their particularities and specific risks. However, ETFs were excluded from such requirements.

Prior to this amendment, shareholding concentration limits only applied to mutual funds, but not to foreign closed end funds, since the CCR considered that the liquidity of the latter depended on the regulated secondary market on which they were traded. With respect to mutual funds, the CCR requires that no contributor could own more than 25% of the total shares of a fund, with the possibility of the CCR approving exceptions in specific cases, considering various factors. In addition, funds managed by the same manager are considered as a single investor.

Following the amendment, the criteria for considering acceptable levels of shareholder concentration of the fund shares vary depending on whether the fund is a mutual fund or a closed end fund:

• For mutual funds, no contributor may concentrate more than 25% of the total shares, in addition to the fund having at least 5 contributors not related to each other or to the fund’s investment manager or related entities. The exceptions previously established are maintained, and the funds managed by the same manager continue to be considered as a single investor.
• For closed end funds, it is now also required that the fund has at least 5 contributors who are not related to each other or to the fund’s investment manager or related entities. Additionally, no contributor may concentrate more than 35% of the total shares, and funds managed by the same manager are considered as a single investor.

The second CCR resolution, published on May 10th, 2024 introduces a new paragraph to Article 18 of the Resolution establishing guidelines on the investment policies of closed-end investment funds as follows.

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• Portfolio Composition: At least 80% of the fund’s investment portfolio must be comprised of instruments that are traded on recognized regulated markets.
• Specific Alternative Assets: No more than 5% of the fund’s portfolio may be composed of Specific Alternative Assets whose investment managers/sponsors have not been approved by CCR.

As a result of this amendment there is increased flexibility. Indeed, the investment policy of closed end funds may provide for exposure of up to 20% in private debt, private equity, real estate and infrastructure assets, provided that the manager of these assets has been approved by the CCR. Otherwise, the investment portfolio may only be comprised of 5% of these assets.