In the face of high volatility, AFP has adapted to the unfavourable market conditions between 2008 and 2011
In 1981, Chile created its privatised compulsory individual pension system. In that same year, AFP Habitat initiated operations with the goal of achieving the best investment returns on the pension contributions accumulated by its clients during their active working years.
Today, after 30 years of operations, AFP Habitat is recognised as a pillar in Chile’s pension fund system, and currently manages over $37.4bn (15 percent of the country’s GDP) for a total of over 2.1 million individuals.
AFP Habitat’s portfolio management team constantly analyse investment alternatives spanning a multitude of countries, among which are the US, UK, France, Germany, Holland, Hong Kong, Malaysia, South Korea, Singapore, Thailand, Indonesia and Brazil. The pension fund administrator currently invests funds for over 2.1 million affiliates and is the second largest in Chile.
The team has an excellent investment return record. The challenge is to maintain this. Between 2008 and 2011, AFP Habitat achieved stellar short-term and long-term investment returns, far surpassing the investment returns achieved by both prestigious global portfolio managers as well as the company’s direct peers in Chile’s privatised pension fund system.
In accordance with industry regulations, all of Chile’s private pension fund administrators are obligated to report investment return performance three times per year, based on results at month-end April, August and December. The official figures published by the regulating body, the Superintendencia de Pensiones, are produced, and depict Habitat’s consistent investment return performance. For each publication period, investment performance rankings are published for the 12-month, 36-month and 60-month returns for each of the five pension funds under management. The five funds reflect different investment risk preference profiles; the proportion of funds destined towards stock investments range from 80 percent in Fund A to five percent in Fund E.
The company achieved the first place position in each of the five funds for the 60-month period ending August 30, 2011; this milestone had previously never been attained by another AFP. At the same August 2011 date, AFP Habitat also registered the highest rankings based on investment return rates for the 12-month and 36-month period. Since the privatised pension fund system’s inception, AFP Habitat’s contributors have attained a 20 percent annual return on their respective investments nine percent over inflation). While only 27 percent of a contributor’s actual savings account balance reflects his/her compulsory pension contributions, the remaining 73 percent reflect the investment return gains achieved by the company.
AFP Investment return gains
Based in terms of investment return objectives and risk tolerance, each affiliate may select in which of the five alternative funds to place his/her pension savings. Affiliates may distribute his/her total savings amount among various funds, and are also free to re-assign the amount at his/her discretion. Upon retirement, affiliates may select between various pension programme alternatives (programmed withdrawals, annuity, or a third deferred alternative which combines the two aforementioned).