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The impacts that the new regulations allowing AFPs to invest in ETFs will have on the local fund industry

The market assured that this could translate into higher returns for the pension funds and put downward pressure on the fees of the AGFs.

Interest in the market has been generated by a new regulation that provides greater investment options to the AFPs. On Saturday, June 3, the Risk Classification Commission (CCR) published in the Official Gazette an agreement that allows pension funds to use Active ETFs, vehicles listed on the stock exchange that are characterized by replicating indexes at a low cost with the option of rebalancing their portfolios to obtain better returns.

The market points out that this new alternative for the AFPs would translate into greater competition in the local fund industry.

It is as if a low-cost competitor were entering, which is good for savers and pensions, and puts pressure on local FFAs,’ said the director of Propela Inversiones, Rodolfo Friz.

Gonzalo Trejos, strategy manager at Quest Capital, said that ‘it forces the active fund that charges commission to show positive results over time with respect to the benchmark’.

Alexis Montecinos, an academic at Suffolk University in Boston, mentioned that the fees of active ETFs are ‘relatively lower than other types of assets and as they follow a global index, they can have returns that are quite good and well diversified portfolios’.

With this, he estimated: ‘What one should observe in the AGFs is that they should lower some commissions’.

Changes in international portfolios

However, the biggest impact would be seen in foreign assets. “We don’t invest much in local mutual funds, in Chile we position ourselves more in investment or we directly buy fixed income papers,” clarified an investment manager of an AFP, while they go to international markets to position themselves in mutual funds.

As for active ETFs, he foresees that “it will be a slow adoption, since there is still not a large number of instruments, but it has an ease of access to the market, greater liquidity and speed of transaction”. For Abaqus partner Gonzalo Reyes, “companies that distribute foreign funds to AFPs in Chile could be affected. In general, (active ETFs) are somewhat cheaper than international mutual funds,” he said.

Better returns, better pensions

Analysts agree that active ETFs could help make AFPs’ investment cost structures more efficient, leading to potentially better returns. “It generates a higher expected return than passive management, which allows improving the expected returns of pension savings and thus the expected pension amounts,” said José Luis Ruiz, an academic at the FEN of the University of Chile.

In this way, “what we should expect in the long term is higher returns with a more balanced risk, so using active ETFs would be a good diversification and hedging policy to increase the return on pension savings”, he predicts.


El poder de satisfacer las verdaderas necesidades del cliente


The power of satisfying the customer’s true needs

How many times have we faced the frustrating situation of a purchase taking longer than promised, and even arriving in fragmented deliveries? How many times have we been disappointed by public services that do not meet our expectations? Take, for example, the cumbersome process of obtaining a driver’s license: we are subjected to endless waits and tedious procedures that consume valuable hours of our lives. So, what is the customers’ verdict on these products and services? It is, without a doubt, abysmal. Unfortunately, this scenario is all too often repeated in both the public and private spheres.

This leads us to reflect on the value proposition offered by organizations. The value proposition is what customers and consumers value in the service or product offered by an organization. However, it is often misunderstood as what the organization itself considers to be good and “believes” that its customers value. “The customer accepts our delays because my product is the best quality product on the market”; “the citizens must accept our times because we must comply with the requirements imposed on us by the state to protect citizens”. But do we really value what organizations think?

It is essential to ask ourselves this question, since the value proposition is the heart of any business or public strategy. Without a solid and deliverable value proposition, there can be no results that will lead to the success of any company’s purpose.

The value proposition is nothing more than a promise we make to our customers or consumers that they, in turn, value. Ultimately, each of us also has a value proposition in the places where we work, study or play a social role. For example, my value proposition may be that I deliver exceptional leadership or analytical skills that help achieve objectives in a company, and those capabilities are valued by my superiors and the organization as a whole.

At the organizational level, our value proposition may be to have the best product in a given segment, to offer the cheapest product, to be the most innovative, or to have the most complete set of products and services in the market. Any of these promises is valid as long as there is a relevant mass of customers and/or consumers who assign value to these promises and are willing to pay for them.  And if this is so obvious, given that it is a minimum requirement to have a company, why is it often not fulfilled? The reason is simple: the value proposition is often not given due attention, either because it is not clearly known, is misunderstood or is wrong in terms of what the customer really values.

For those of us who are in the business of strategizing in different organizations, it comes as no surprise that many organizations still have numerous processes that do not necessarily lead to improvement in the value proposition. This is where confusion arises about the purpose of processes in organizations where the focus is on meeting control and efficiency requirements rather than the value proposition itself. We often hear phrases such as “the numbers don’t add up”, “that doesn’t meet the requirements of the regulatory body” or “customers value our quality processes over those of any other competitor”.

This is especially common in many of our public and private organizations in Latin America, while it occurs much less in the United States and Europe. New companies or startups not only adopt new technologies, but also adapt to new customer demands and make a solid promise that they fulfill efficiently and sustainably over time.  In other words, they have a value proposition that makes more sense than previous offerers and that is what ends up killing a given business or service at the hands of others.

As long as organizations continue to focus primarily on their costs, on meeting their regulatory requirements or simply forget that they have a promise to a third party through which we can benefit, there will be new suppliers that will participate in specific market niches. We cannot lose sight of our objective under the guise of misunderstood efficiencies, based solely on the financial well-being of the company, instead of ensuring that our customers leave happy and come back again and again to buy our products.

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