translated from Spanish: Reform the AFP: competition of carton

one of the objectives of the pension reform submitted by the Executive to Congress, is to increase competition between the AFP.
To do so, announced changes to the bidding process for affiliates and dealt with measures that facilitate the entry of new players to the market of the administering.
The logic is that greater competition will reduce administration committees, which will be for the benefit of members (albeit not necessarily more pension).
The AFP long have insisted that the market is competitive and argue that competition should also include the profitability factor.
Competition from carton it is true that the AFP will compete each other, but their competition for profitability is more bark than bite for a very simple reason: close current legislation against competition by profitability and promotes uniformity.
Indeed, the AFP can only invest in instruments which the law designates and margins established both at legal and regulatory level.
The State sets the investment policy and assumes the role of the risk manager. A ridiculousness. No one knows what will happen to the markets, even in the short term, but we have a system that required lengthy processes to adapt and, to put so many limits, preventing the differentiation between various managers.
Complementing this problem it is the famous herd effect, which is generated by the fact of forcing the AFP to maintain an amount of silver invested similarly managed funds, as a guarantee to complement the profitability obtained by an AFP if she is strongly lower than the average of the market. It is what is known as lace.
At first glance, punishing the AFP that has a yield well below the rest sounds reasonable, but practice shows that, like that in the prisoner’s dilemma, the incentive has been to monitor each other and do the same to the other.
The best evidence of this is that since the beginning of the multifunds (16 years) no AFP has lost part of the socket have a significantly lower than the system yield. All move in the same ranges. The regulatory framework transforms the competition on profitability in an illusion. Competition from carton.
Competition of carton and true competition as Bill does not change the way in which regulates the investment of AFPS, the entry of new actors, produce, will be more of the same, and even worse, because the risk of needlessly fragment the fon is generated two, affecting the efficiency of the investment process. Precisely the opposite direction to the one followed by countries with better results.
Very different would be if the Executive had aimed to attract foreign managers; managers with ability to really challenge the AFP today, taking advantage of economies of scale and specialized know-how. That would be true competition.
For example, you could bet by opening up the market to the large administrators from Canadian pension funds, which have very superior to the Chilean funds returns and all an expertise that does not exist in Chile. These funds could be very competitive in commissions, by the economies of scale available and being non profit (item valued by members).
However, if the invitation is administered under criteria established by the Chilean authorities, with very little real space to deploy their expertise and use their investment platforms, simply they will not to be interested, because there they lose the ability to take advantage of their economies of scale and turn your experience into a competitive advantage.
In other words, if the belief is that competition is the way to help solve the problem of pensions in Chile, which is further a world class competition, because we have now is second or third class. Competition from carton.

Original source in Spanish