Fund E: pension fund managers (AFPs) reduced the duration of their investment portfolio in October to its lowest level in two years

There is a metric that has become fashionable since the controversy erupted over the drop in returns of the AFPs' most conservative funds, and which had not previously been a topic: the duration of the investment portfolios held by the pension fund administrators. This indicator is relevant to analyze within the framework of the debate generated by the drop in returns recorded particularly in Fund E, which marked a decline of 4.92% in September, accumulating a plunge of 10.39% in real terms for the year, although in October it rebounded and reduced that drop to 7.6%. The duration of a fixed-income portfolio measures the sensitivity of the portfolio's price to variations in market interest rates. This means that the longer the duration of the portfolio, the more intensely its price will move in response to changes in market rates. Precisely to increase that duration, the AFPs began conducting interest rate swap operations starting in 2023, and they increased their exposure to this type of derivative over time. The AFPs have argued that they did so in order to better match the pension liability and thus protect affiliates' pensions, rather than measuring Fund E's risk by the volatility of the quota. In any case, for those who have retired in recent months and were in Funds D and E, so far they have not seen the drop in their savings fully offset with better pension offers. Just over two weeks ago, the Superintendence of Pensions made public the official figures on the duration reached by the AFPs' portfolios in Fund E: it stood at just over 10 years in December 2023, and kept rising until surpassing 18 years between April and June 2026, nearly doubling the duration of their portfolio in two years. But on April 9, the regulator notified changes to the investment regime, establishing exposure limits on derivatives, for which it gave a period of 210 days for their implementation. In that new context, in July the AFPs had already somewhat reduced their exposure, lowering it from the more than 18 years marked previously to about 16.8 years. In August they reduced it to around 15.5 years, and in September it remained almost the same. Then, in October, a new drop was recorded, bringing the duration to about 14 years, its lowest level in two years, with the regulation practically in force, considering that the deadline to comply with the regulator's new requirements expired on November 5. Economist Matías Acevedo accounts for these figures; after being consulted, he agreed to carry out the analysis with the figures the regulator updated on its website this week, through October. Those data allow the duration to be constructed, but they require significant work to be processed. So far, the Superintendence of Pensions has not agreed to provide that processed information. According to the data systematized by Acevedo, based on public information from the Superintendence of Pensions, all that reduction in duration that the AFPs have carried out has been achieved through a reduction of their exposure to derivatives, specifically interest rate swaps. To give an example, according to information published by the regulator, the AFPs, across all five multifunds, recorded losses of US$7.7 billion in September on swap operations conducted with foreign banks. But by October that loss had been reduced to about US$2.9 billion. This occurs partly because they liquidated positions, but also because U.S. interest rates gave them some relief during October. This amount does not include operations conducted with local banks, in which case the amount increases. When adding up the total of swap operations with foreign rates (considering contracts with foreign and local banks), the valuation loss in the five multifunds was US$10 billion in September, which was reduced to just over US$4.2 billion as of October. When breaking that figure down by fund type, a reduction in the valuation loss of their swap positions with foreign issuers is observed in all multifunds, but the largest drop occurred in Fund E, as the loss fell from nearly US$900 million in September to about US$250 million in October. It was closely followed by Fund D, which went from -US$1.35 billion to -US$390 million over the same period. By AFP Acevedo also updated the information on the duration of Fund E portfolios broken down for each of the AFPs, according to the latest figure published at the close of June, that is, practically two months after the Superintendence of Pensions instructed the AFPs to reduce their derivative positions. These disaggregated figures are published with some lag on the regulator's website, unlike the aggregate data, which are updated more frequently. Thus, the figures for June, published this week, show that Cuprum was the AFP that most reduced its duration between May and the sixth month: it lowered it by one year, to 17.4 years at the close of June. It was followed by Modelo with a reduction from 19.7 to 19.2 years, but it nevertheless remained the AFP with the longest duration. Habitat made no major changes between the two months, keeping the duration of its portfolio at 19 years, making it the second AFP with the longest duration. There was also an AFP that increased the duration of Fund E between May and June: that was the case of Capital, which raised it from 18 to 18.5 years. AFP Uno also raised it, slightly, from 17.7 to 17.8 years. Meanwhile, Planvital and Provida each carried out a reduction of three and four months respectively, bringing it to around 18 years. 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