It's not a bet, it's not a herd… it's bad regulation, stupid.

The terrible results of Fund E in 2026 unleashed a flood of criticism of what the AFPs did. It was a gamble, some say. They behaved like a herd, say others. In this context, it is worth carefully analyzing what happened. Only a good diagnosis makes it possible to understand what has been done wrong. It is the only way to improve. If by "gamble" they mean an investment management approach that allocated resources irresponsibly and randomly—like numbers on a roulette wheel—it is absolutely wrong. If by "herd" they mean that the investment managers acted like a pack of hyenas scavenging for carrion—their profits—ignoring protocols and regulations, then I think they understand nothing about how that industry works. The losses are the responsibility of the AFPs, which persisted in a long-duration portfolio strategy that, when interest rates fell, produced very positive returns in 2025 (which of today's loud voices warned about that high variability, albeit positive, last year?). That year, the return from derivatives alone exceeded US$4 billion, with Fund E posting gains of US$570 million. Everything changed in the first quarter of 2026, when the rise in interest rates began to erode those gains. When should the AFPs have changed strategy? In April, when they still had a cushion of positive returns of US$240 million, of which US$80 million corresponded to Fund E. But they did not; the regulation did not require them to change. But the losses are also the responsibility of Parliament and the industry's Superintendency. Despite the rending of garments by the authorities of both entities, the truth is that to this day there is no comprehensive financial risk regulation scheme for the administration of pension funds. DL 3,500 and the Investment Regime for Pension Funds establish in detail the limits for the credit or counterparty risk of the instruments. That is, whether they will be paid back or not. But regarding financial risk and, in particular, investment in derivatives, only a coarse limit is defined—a maximum amount to be invested relative to the total value of the fund—without taking into account that the high sensitivity of derivative price changes can produce a devastating loss for contributors' assets. And that is exactly what happened. It is therefore worth making a couple of reflections, since similar challenges lie ahead for future generational funds. First, there should be specific and strict regulation of the market risk of Pension Fund investments, both in the Law and in the Investment Regime. Second, that regulation should establish greater capital requirements as market risk increases (this has been happening in banking for years; I took part in its design in the 1990s). For example, the AFPs could be required to hold larger reserves when market risk rises above a certain limit relative to assets. Third, the more conservative funds should have a different treatment for their eligible debt instruments, so that their incentives are to invest in instruments that truly preserve pensioners' assets. A separation could be established in their investment book between a "trading book" and a "funding book," the former with instruments tradable at all times and the latter with less liquid, very short-term instruments that are held to term and truly preserve the assets. Let us hope we do not stop at the loud voices' complaints. Once the urgency—and the TV cameras' lights—have passed, we will still need the improvements, so that the system has long-term sustainability. *The author of the column is academic director of UEjecutivos programs at the Faculty of Economics and Business of the University of Chile and an economist at GH Capital Invest – Labfinanzas.co NEWSLETTER Opinion Saturday, AM Tensioned ideas, opposing views, and clear analysis: elements to unravel the issues that divide opinions and will set the agenda. By subscribing you are accepting the Terms and Conditions and Privacy Policies of La Tercera.