Investment Funds 2024 Comparisons

Chilean investment fund legislation does not provide for specific structures for funds investing in alternative assets.

In Chile, the distinction between FFMM and investment funds does not consider whether the types of assets in which these funds invest are traditional, alternative or a combination of the two. The investment strategy employed by the fund’s manager is also not relevant in this regard. Consequently, investment in alternative assets in Chile may be structured through any of the legal structures permitted by law.

As mentioned in 1.1 State of the Market, investment funds are governed by the LUF, which a decade ago provided a systematised, coherent and unified regulatory framework for the various types of investment funds permitted within the jurisdiction. The LUF is complemented by its Rules, contained in Decree No 129. Significant attention must also be given to the role performed by the Chilean Financial Market Commission (Comisión para el Mercado Financiero – CMF), in terms of its legal mandate to issue regulations for the application and enforcement of laws and regulations and, in general, to issue any other norms that, in accordance with the law, are incumbent upon it for the regulation of the financial market. Similarly, the CMF shall be responsible for the administrative interpretation of the laws, regulations and other rules governing the persons, entities or activities under its supervision, and may set rules and issue instructions and orders for their application and compliance.

Through these regulations, among others that it is authorised to enact, the CMF has established a comprehensive regulatory framework pertaining to investment funds. An exception to this rule is in respect of Chilean pension funds, which continue to be regulated separately in terms of both their structure and the investments they are allowed to make, which are set out in various legal bodies, including Decree Law 3500, the Compendium of Pension System Regulations, the Compendium of Central Bank Financial Regulations, the Pension Funds Investment Regime and other regulations issued by the Chilean Pensions Supervisor or any governmental authority with regulatory jurisdiction in specific aspects of the applicable legislation (collectively, “Chilean Pension Regulations”).

The primary classification established by the LUF regarding investment funds is based on whether the investors' units are redeemable. If the units are redeemable and this redemption is executed within ten days from the request, the fund will be considered an FFMM. If the units are redeemable but the redemption is carried out between 11 and 179 days from the request, the fund will be considered a redeemable investment fund. Finally, if the redemption occurs in 180 days or more, the fund will be considered a non-redeemable investment fund. This initial classification has significant implications for the fund’s structure, operational burden and frequency of regulatory reporting.

In addition, Chilean regulation differentiates between a private investment fund (FIP), which must have a minimum of eight investors and a maximum of 49 (who cannot belong to the same family, as stipulated in the LUF) and a public investment fund (FI), which must have a minimum of 50 investors. The primary consequence of this classification pertains to the level of supervision the CMF will exercise over the fund.

The primary advantages of structuring investments in alternative assets through an FIP include:

• the flexibility of its Reglamento Interno (“by-laws”);
• the low cost of maintaining the structure;
• the minimal regulatory compliance required from its fund manager (as defined in 2.1.4 Disclosure Requirements); and
• the speed of its set-up process.

However, due to the maximum limit of 49 investors, it is challenging to diversify participation among a sufficient number of investors unless the fund is targeted at large national or foreign qualified or institutional investors. Attracting such investors can be difficult, as the FIP is not subject to the direct supervision of the CMF.

By structuring investments in alternative assets through an FI, the oversight role of the CMF provides greater security to investors due to the regulatory controls imposed upon them. Although the minimum number of investors for this type of fund is 50, this requirement does not apply if an institutional investor (either local or foreign) is among them. The set-up process for this type of investment fund is slower and its maintenance involves higher costs, primarily due to the operational and regulatory requirements.

Investments made in Chilean investment funds are materialised in “units”, which are the equivalent of participating shares in a typical limited partnership/general partnership structure. These units represent the investor’s participation in the fund. The investor’s liability is limited to the amount of their contribution.

The incorporation time for an alternative investment fund can vary significantly depending on whether it is structured as an FI or an FIP.

The set-up process of an alternative investment fund is directed by the fund manager, which must be legally structured as outlined in 2.2.2 Legal Structures Used by Fund Managers. Once the fund manager has finalised the draft of the respective fund’s by-laws, its board of directors must pass a resolution approving them.

• For FIs, there is an additional requirement whereby the fund manager must deposit the approved by-laws, along with a dossier of supplementary documents concerning the newly created fund, in the Public Registry of Funds administered by the CMF. The CMF has the authority to raise objections to the supporting documentation or specific aspects of the by-laws.
• Pursuant to Article 46 of the LUF, the fund manager must deposit the by-laws of the investment fund and all additional documents as specified in NCG No 365 of 2014 of the CMF (NCG 365), following the instructions and specific forms available on the CMF’s online portal.
• The incorporation process for an FIP is relatively straightforward and expeditious. Conversely, for FIs, the drafting of by-laws requires extensive analysis and adjustment to comply with the provisions established in the LUF and NCG 365. The drafting of the necessary documents for the CMF deposit can require several hours of professional work, and may require the intervention of third parties to produce documentation (custodians, independent valuators, external auditors, etc). The fund manager must also submit a similar set of documents to Chile’s Internal Tax Revenue Service web portal to obtain a Tax Identification Number for the investment fund, which adds between three and five working days to the set-up process.
• It is particularly relevant to note that the documents to be deposited with the CMF for each FI must include a guarantee in favour of each investment fund, for an initial amount equivalent to 10,000 Unidades de Fomento (a common inflation index unit widely used in various provisions of the LUF), which currently amounts to approximately USD400,000.

As mentioned in 2.1.1 Fund Structures, investments in any fund domiciled in Chile are represented by units of the respective fund, thereby limiting the liability of investors for the fund’s obligations up to the amount they have contributed for their respective units. Accordingly, the fund manager is not liable for the obligations of the fund with its own assets.

The LUF does not contain provisions allowing for the lifting of the corporate veil. General rules permitting the piercing of the corporate veil have been applied judicially in a restrictive and exceptional manner.

Regarding the nature of the assets in which they invest, there are no specific disclosure requirements for alternative investment funds.

Pursuant to paragraph 3 of the LUF and NCG No 386 and NCG No 461 of the CMF, fund managers are required to disclose information concerning their managed funds. The extent and scope of such disclosure depends on the type of fund manager, as outlined in 2.2.2 Common Process for Setting Up Investment Funds.

For FIs, the Administradora General de Fondos (AGF, which in Chile corresponds to a certain type of fund manager) must ensure the truthful, sufficient and timely disclosure of information regarding the fund’s main characteristics (as set forth in its by-laws), financial statements, investor registry and corporate governance. All specific details concerning the disclosure of different series of units pertaining to a fund must be provided. Recently, the fulfilment of certain environmental, social and governance (ESG) standards has also been included within the disclosure requirements for AGFs.

From a procedural perspective, such disclosure is initially provided to the CMF through the SEIL web portal. The CMF then makes it accessible to the general public. The fund manager must also provide access to the documents submitted to the CMF through its own website and maintain printed copies of some of these documents in their offices, which shall be available to FI investors. None of these disclosure requirements are mandatory for FIPs.

However, Administradoras de Fondos de Inversión (AFI, which in Chile corresponds to private investment fund managers; together with AGFs, “fund managers”) are still required to comply with the obligation to register in the CMF's Special Registry of Reporting Entities. This status as a reporting entity imposes fewer reporting obligations compared to those applicable to AGFs. In addition to providing their corporate information and supporting legal documents, AFIs must fulfil the obligation to submit updated information to the CMF regarding the FIPs under their administration on a quarterly basis. The background information included in this submission encompasses the name and valid Tax Identification Number of each fund, a detailed list of its investors and the valuation of its assets and liabilities, including a description of the accounting methods used in such valuation.

The majority of the active FIs within the Chilean industry target alternative assets. According to an April 2024 press release from the ACAFI, more than 70% of the investment funds managed by these companies invest in alternative assets, and more than 50% of them go to national assets. This year’s reform of the Chilean Pensions Regulations will only increase said appetite; see 4.1 Recent Developments and Proposals for Reform.

There is no specific legal structure imposed on fund managers by local regulations based solely on the management of alternative assets through investment funds. The legal structure is determined exclusively by whether the fund manager will oversee the management of an FI or an FIP, as described in 2.1.2 Common Process for Setting Up Investment Funds. In both instances, the fund manager must be domiciled in Chile.

FI’ must be managed by a particular type of regulated closely held stock corporation (Sociedad Anónima Especial) that requires prior authorisation from the CMF and is subject to ongoing supervision. These are special corporations whose sole purpose is the management and administration of third-party funds, for which the Law of Stock Corporations, the LUF and the regulation of the CMF establish complex authorisation requirements. This type of corporation is referred to as an AGF (see 2.1.4 Disclosure Requirements) and is subject to substantial reporting requirements, minimum capital requirements and ongoing personnel accreditation monitoring.

FIPs may be managed by an AGF but can also be managed by a softly regulated closely held corporation known as an AFI (see 2.1.4 Disclosure Requirements).

No specific requirements are imposed on fund investors as a direct consequence of their investments in alternative assets or considering the type of investor. An exception to this rule is established in the Chilean Pension Regulations, which maintain stringent controls on the percentage of investments permitted to be allocated in alternative assets.

Recent developments have allowed for an expanded threshold for pension funds investing into alternative assets, as explained in 4.1 Recent Developments and Proposals for Reform.

Chilean regulation does not impose specific investment limitations on alternative funds per se, with the exception of the specific restrictions applicable to pension funds under the Chilean Pension Regulations.

However, certain investment prohibitions and limitations apply to all funds, regardless of whether they are FFMMs, FIs or FIPs. Funds are prohibited from directly investing in real assets, mining properties, water rights, property rights, industrial or intellectual property, and vehicles of any type. Funds are also not permitted to engage directly in:

• industrial, commercial, real estate, agricultural, mining, exploration, exploitation or extraction activities;
• insurance or reinsurance activities; or
• any other business that involves the direct development of a commercial, professional, industrial or construction activity by the fund.

In general, funds are restricted from undertaking any activity directly other than investment. To engage in such activities or hold said assets, investment funds typically invest in special purpose vehicles (SPVs), which own the portfolio assets or engage in these activities. This investment in an SPV is materialised through either equity or debt.

In addition, pursuant to Article 58 of the LUF, funds must comply with limitations on investments made in equity or debt instruments issued by parties related to their fund manager. Finally, according to NCG No 376 (NCG 376), additional restrictions and reporting obligations apply exclusively to FIs when investments are made in offshore jurisdictions.

The original organisational framework established by the LUF in 2014 vested the fund manager with all the responsibilities and operational capabilities necessary for an investment fund to function. Exceptionally, the fund manager must appoint a custodian regulated by the CMF when the asset class in which the fund invests requires such a service. They are also required to appoint a fund auditor from among those registered in the CMF Register of External Auditing Entities.

Pursuant to CMF Circular Letters No 657 of 2011 and No 592 of 2010, if the fund’s by-laws permit payment in kind (of units), the fund manager must appoint an independent valuator. A similar appointment must be made for the valuation of alternative assets.

As fund service providers have gained further specialisation, fund managers have increasingly outsourced a broader scope of services, including compliance services, IT providers, investment brochures or prospectus design services, and investor services platforms, which generally are not subject to licensing or authorisation.

It is important to note that, despite the outsourcing of these tasks and services, the fund manager’s liability for the management of the fund is non-delegable, as stated in Article 15 of the LUF. Consequently, clauses that limit the responsibility of the fund manager for the actions of outsourced service providers are not enforceable against third parties.

Under Chilean regulation, fund managers are the default providers of both fund administration and fund management.

As mentioned in 2.2.2 Legal Structures Used by Fund Managers, all Chilean fund managers must be domiciled in Chile. However, the LUF allows for the outsourcing of some tasks and responsibilities to an external manager, either local or foreign, as long as the extent of such activities and the costs involved are established in the fund’s by-laws.

According to the LUF, the fund manager has a maximum of 180 days to begin marketing the fund, counted from the filing of the respective by-laws. Given that the CMF may present objections or observations to the by-laws of FIs or other documentation submitted in relation to each new investment fund, as described in 2.2.2 Legal Structures Used by Fund Managers, the revision of these documents may be prolonged.

With the exception of rules established for the private offerings of FIPs (as explained below), there are no pre-marketing provisions contained in local regulations for alternative funds.

Units would be classified as a security in Chile. Active and/or passive marketing of funds is permitted, provided that an exemption to the public offering registration requirement is complied with. An offer is not a public offering and can be offered without prior registration where it is exclusively and privately targeted to a certain type of investors (institutional investors). On the contrary, any public offering of securities (which includes fund units) must be preceded by the registration with the CMF of both the issuer and the securities or class of securities being offered.

The public marketing and selling of fund units in Chile requires registration of the fund and its units with the CMF. The selling and intermediation of fund units in Chile requires the appropriate brokerage licence, as fund units fall within the meaning of “securities” under the Securities Market Law.

For the purposes of this exemption, an offering will be held to be exclusively and privately conducted if it is aimed at certain eligible investors and there is no use of mass media means of dissemination, such as the press, radio, television and the internet accessible publicly inside or from Chile, regardless of the place where they are produced or broadcasted. For the avoidance of doubt, this exemption provides that the following media shall not be considered to be mass media means of dissemination:

• letters, emails and other communications, whether physical or electronic, that are exclusively addressed to a designated person identified in the communication; and
• telephone calls, meetings, personal interviews and electronic systems of restricted access.

Pursuant to NCG No 336 of the CMF (NCG 336), an offer of securities shall not constitute a public offer, provided the person making the offer complies with the disclosure requirements and adopts the compliance procedures established in NCG 336.

Securities sold on a private placement basis must comply with the compliance requirements established in NCG 336, Section IV of which provides that the individuals or entities that make private offers of securities, in accordance with the general rule issued by the CMF, will be responsible for adopting all necessary measures and safeguards in order to:

• verify the identity and status as a qualified investor of the persons to whom the offers of the securities are addressed;
• comply with the conditions, limits and amounts necessary for the offer to be considered a private offer of securities; and
• accredit, whenever instructed to do so by the CMF, the due compliance of the obligations set forth in NCG 336.

Securities sold on a private placement basis must comply with the disclosure requirements established in NCG 336. FIPs cannot perform any marketing activities besides private offerings of their units in accordance with NCG 336, which establishes the following requirements and procedures:

• a maximum of 50 non-qualified investors;
• a maximum of 250 high net worth individuals;
• qualified investors only; and
• entities managed exclusively by qualified investors.

Said private offering must provide acknowledgement of the following to targeted investors:

• the offering is performed in accordance with the requirements set out in NCG 336 of the CMF;
• it refers to non-registered units of a fund and, consequently, its public offering is not allowed;
• the units represent participations in a fund unsupervised by the CMF; and
• the issuing fund is not obliged to inform the CMF of the characteristics of the units.

Alternative investment funds are not subject to specific marketing rules, with the exception of the rules established for the private offerings of FIPs. The marketing of MMFFs and FIs is governed by the rules set for the offering of securities, while FIPs can only perform a private offering. In this regard, the LUF expressly establishes a prohibition on performing any public offer of FIP units, their profitability or the promotion of private fund management service.

Any type of communication or information issued regarding a FIP must necessarily disclose that these funds are not regulated nor supervised by the CMF.

FIPs are subject to significantly less strict CMF oversight than FIs, as mentioned in 2.1.4 Disclosure Requirements. Accordingly, AFIs managing such funds are subject to less stringent oversight by the CMF, and the private offering of their units must comply with NCG 336, as mentioned in 2.3.5 Rules Concerning Pre-marketing of Alternative Funds.

Rules regarding the marketing of securities apply to FFMMs and FIs, as their units must be previously registered with the CMF. Pursuant to NCG 365, the fund manager must then provide target investors with the following information:

• the fund’s by-laws (as previously deposited in the CMF Register of Fund By-laws);
• the General Subscription Agreement of the fund manager;
• the specific Subscription Agreement for the marketed fund;
• the Informative Brochure of the fund, issued in accordance with CMF guidelines (allowing for an informed investment decision based on its historical revenues, the fund’s investment thesis, the fund's particular risks, the portfolio composition, etc); and
• financial statements sent by the fund manager to the CMF.

Alternative funds can be marketed to any type of local or foreign investor, except for those governed by the pension fund investment regime, which imposes stringent controls on the percentage of investments allowed in alternative assets, as mentioned in 2.2.3 Restrictions on Investors.

No specific authorisation or notification is required for alternative investment funds per se, except those mentioned in 2.3.6 Rules Concerning Marketing of Alternative Funds.

Fund managers are required to comply with ongoing disclosure and reporting requirements to the CMF regardless of the type of asset class, strategy or investments made by the investment funds under their management. These obligations include the updating of all marketing materials related to the funds under management, as outlined in 2.3.6 Rules Concerning Marketing of Alternative Funds.

AFIs are subject to a lesser degree of oversight by the CMF; therefore, the ongoing marketing requirements for FIPs must adhere to the provisions mentioned in 2.3.5 Rules Concerning Pre-marketing of Alternative Funds regarding the private offering of FIP units.

Conversely, AGFs are subject to significantly high regulatory requirements, which include the reporting of information regarding the fund, including an updated version of the fund’s by-laws and its respective Informative Brochure. These reporting obligations must be fulfilled at least quarterly in accordance with the deadlines and requirements set forth in NCG No 30 of the CMF.

An offer subject to NCG 336 has to be exclusively and privately targeted to eligible investors in Chile, which corresponds to institutional investors. There are no specific investor protection provisions regarding alternative investment funds or restrictions other than those mentioned in 2.3.1 Regulatory Regime.

Under Chilean law, any public entity may be the subject of a request for contact or a meeting with its officials, through compliance with current administrative regulations.

Generally, the fund manager is responsible for approaching the CMF regarding any existing or newly created investment funds. Pursuant to NCG No 314 of the CMF, fund managers must engage with the CMF through a web portal known as SEIL.

To contact a public service such as the CMF under Chile's Lobbying Law 20.730, a regulated and transparent process must be followed. Initially, a request for a hearing or meeting must be submitted, detailing the purpose and topics of the interaction. The public entity (in this instance the CMF) will review the request and, upon approval, schedule the meeting. All interactions are documented and published on the Lobby Law website, ensuring transparency and public access to information.

Despite the highly regulated communication channels, the CMF is approachable, even through face-to-face meetings, provided all rules applicable for lobbying are fulfilled in accordance with the provisions set forth in Law No 20.730 and its Rules contained in Decree No 71 of 2014.

See 2.1.1 Fund Structures.

See 2.1.2 Common Process for Setting Up Investment Funds.

See 2.1.3 Limited Liability.

See 2.1.4 Disclosure Requirements.

See 2.2.1 Types of Investors in Alternative Funds.

See 2.2.2 Legal Structures Used by Fund Managers.

See 2.2.3 Restrictions on Investors.

See 2.3.1 Regulatory Regime.

See 2.3.2 Requirements for Non-local Service Providers.

See 2.3.3 Local Regulatory Requirements for Non-local Managers.

See 2.3.4 Regulatory Approval Process.

See 2.3.5 Rules Concerning Pre-marketing of Alternative Funds.

See 2.3.6 Rules Concerning Marketing of Alternative Funds.

See 2.3.6 Marketing of Alternative Funds. Investment funds targeting 50 or more investors must be structured as FIs (public funds only).

See 2.3.8 Marketing Authorisation/Notification Process.

See 2.3.9 Post-marketing Ongoing Requirements.

See 2.3.10 Investor Protection Rules.

See 2.3.11 Approach of the Regulator.