Alternative Investment Funds Comparative Guide

1 Legislative and regulatory framework

1.1 In broad terms, which legislative and regulatory provisions govern alternative investment funds in your jurisdiction?

Alternative investment funds (AIFs) are governed by the Single Funds Act (20,172) and by Supreme Decree 129/2014 of the Ministry of Finance ('Funds Regulation'). In addition, the Comisión para el Mercado Financiero (CMF), which regulates and supervises the Chilean financial markets, is granted powers to regulate the fund industry through general regulations.

1.2 Do any special regimes or provisions apply to specific types of alternative investment funds?

With the promulgation of the Single Funds Act, previous laws that governed specific types of investment funds were repealed. As a result, all investment funds, including AIFs, are currently subject to the Single Funds Act.

Under the Single Funds Act, AIFs may be structured as private investment funds ('private AIFs') or public investment funds ('public AIFs'). Private AIFs must have fewer than 50 investors; otherwise, they are public AIFs. A much more onerous regulatory regime applies to public AIFs. In addition, public AIFs are subject to a different regime depending on whether they are structured as closed-ended funds or open-ended funds. (Although open-ended funds are more likely to be the structure of choice for hedge funds, Chile does not have a developed hedge fund industry.) For these purposes, a closed-ended fund is a fund that does not permit on-demand redemption of its units in full or that, while permitting such redemption, it defers repayment for 180 days or more. Where applicable, the responses to this Q&A will distinguish between these various categories of AIFs.

AIF structured as public AIFs must be managed by fund management companies authorised by the CMF ('authorised FMs'); whereas AIFs structured as private AIFs may be managed either by authorised FMs or by private fund management companies ('private FMs').Where applicable, the responses to this Q&A will distinguish between these two categories of FMs.

For the sake of completeness, a fund with fewer than 50 investors may also be structured as a private company without being regulated by the Single Funds Act. However, this structure will not benefit from the tax treatment available under the Single Funds Act. Corporate structures fall outside the scope of this Q&A and are mentioned only for comparison purposes.

1.3 Do the legislative and regulatory provisions governing alternative investment funds have extra-territorial reach?

The Single Funds Act and the Funds Regulation only apply to AIFs managed by authorised FMs or private FMs, in each case established in Chile. However, foreign AIFs and their managers should be mindful of the marketing rules applicable to foreign investment funds in Chile and the regulatory restrictions applicable to certain Chilean institutional investors investing in AIFs.

1.4 Are any bilateral, multilateral or supranational instruments in effect in your jurisdiction of relevance to alternative investment funds?

Chile is a party to bilateral and multilateral free trade agreements with many countries and economic blocs. Where such free trade agreements cover trade in financial services, they also set out the specific commitments adopted by Chile in that sector. Broadly speaking, Chile's specific commitments in the financial service sector include permitting foreign investors to provide fund management services through a commercial presence/right of establishment, on terms no less favourable than those accorded to domestic financial service suppliers. Such access and treatment are subject to the restrictions and limitations set out in the relevant agreement. Investments by foreign investors in units issued by Chilean AIFs also enjoy certain protections under applicable free trade agreements or other bilateral investment treaties, subject to the conditions and limitations set out therein. Chile also adheres to international practices regarding the exchange of information on financial investments held by non-resident investors, as further described in question 8.4.

1.5 Which bodies are responsible for regulating alternative investment funds in your jurisdiction? What powers do they have?

Public AIFs: Public AIFs and their authorised FMs are regulated and supervised by the CMF. The CMF exercises its rule-making powers through general regulations. Pursuant to its supervisory powers, the CMF may request all necessary information from authorised FMs to assess:

their solvency; the performance of their asset management function; and the state of affairs of their investments. In addition, the CMF may revoke the authorisation granted to an authorised FM (see question 4) where there has been a serious breach of law or where an investigation reveals that the authorised FM's business has been carried out in a fraudulent or negligent manner.

Private AIFs: Private AIFs are neither regulated nor supervised by the CMF and are subject to de minimis regulation in the Single Funds Act. However, the manager of an AIF (whether an authorised FM or a private FM - see question 2.6) must provide the CMF with certain information relating to the private AIFs it manages, in the manner and in the frequency set out by the CMF. See question 7.2 for further details.

1.6 To what extent do the regulators cooperate with their counterparts in other jurisdictions?

The CMF is a party to memoranda of understanding to foster cooperation and exchange of information with several foreign regulators. At a multilateral level, the CMF has endorsed the Multilateral Memorandum of Understanding of the International Organization of Securities Commissions ("IOSCO").

2 Form and structure

2.1 What types of alternative investment funds are typically found in your jurisdiction?

The most common types of AIFs available in Chile are private equity funds, private debt funds, real estate funds and infrastructure funds.

2.2 How are these alternative investment funds typically structured?

The Single Funds Act established a sui generis legal structure: the investment fund, defined as a pool of assets without legal personality and formed by the contributions made by investors, whose management is entrusted to an authorised FM or to a private FM. In exchange for their contribution, participants receive units in the fund, which grant them economic and voting rights.

As mentioned in question 1.2, AIFs may be structured as public AIFs or private AIFs. Public AIFs have 50 investors or more. Public AIFs are supervised by the Comisión para el Mercado Financiero (CMF) and are deemed issuers of securities. They are therefore subject to a stricter regulatory regime than that applicable to their private counterparts. AIFs can also be structured as private companies, although whenever the minimum requirements to incorporate a private AIF can be met, the corporate structure is not used. As described in question 8, in light of the tax regime granted to public AIFs and private AIFs, they are the most efficient structures to organise collective investments in Chile.

2.3 What are the advantages and disadvantages of these different types of structures?

The main advantage of public AIFs and private AIFs when compared to the usual corporate structure lies in their tax treatment. Pursuant to the Single Funds Act, public AIFs and private AIFs are tax transparent vehicles. Therefore, their income is not subject to income tax. Also, provided that investors meet certain additional criteria, profits stemming from public AIFs and private AIFs may benefit from further tax relief. See question 8 below for further detail.

Public AIFs are subject to several restrictions affecting their investment policy, indebtedness and management. Where public AIFs are distributed exclusively among qualified investors, however, the legal restrictions on investment policy and indebtedness operate only by default; their internal bylaws may enable them to operate more flexibly. 'Qualified investors' include:

institutional investors - that is, banks, financial companies, insurance companies, local reinsurance companies, fund managers authorised by law and any other institutions that qualify as such as determined by the CMF; banks, insurance and reinsurance companies, fund managers and securities intermediaries, in each case organised outside Chile and, in the case of securities intermediaries, when acting for their own account or for the account of clients, provided that such clients are not Chilean citizens, Chilean residents or in transit in Chile; local securities dealers; local dealers of agricultural products; Chilean or foreign individuals or legal entities that, at the time of making the investment, hold financial investments in securities which can be offered to the public in Chile or abroad in an amount not less than 10,000 Unidades de Fomento (UF); Chilean or foreign individuals or legal entities that have delegated their investment decision to a qualified investor pursuant to a portfolio management agreement and provided that: the authority to participate in private placements is expressly set out in such agreement; and the qualified investor informs the client of the transactions carried out pursuant to such authority with a frequency set out in such agreement; Chilean or foreign legal entities in respect of which investment decisions are made by a qualified investor; and Chilean or foreign individuals or legal entities that, at the time of making the investment, (i) hold financial investments in securities which can be offered to the public in Chile or abroad in an amount not less than 2,000 UF and (ii) meet any of the following criteria: own assets in an amount equal to or greater than 100,000 UF; during the past four months, have entered into at least 20 transactions in the securities market, each for an amount equal to or greater than 1,000...