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Sovereign wealth funds: Copper lifts Chile’s reserves

Funds move to more aggressive investment strategies.

Chile is on the verge of implementing a new, less conservative investment programme for its two reserve funds.

In the next month, the ministry of finance is expected to select international consultants that will advise on the investment strategies for the reserve funds, whose income derives from copper sales. Callan Associates, Mercer, Russell Investment Group, Strategic Investment Solutions, Towers Perrin and Wilshire Consulting are the six firms competing for the role.

"We are starting to look for higher returns from our funds," says Eric Parrado, international finance coordinator at the ministry of finance in Chile. "Now, with outsourcing the management of the equity and corporate bond portion of these funds, we are taking the first steps towards optimal asset allocation with a longer investment horizon than our central bank international reserves."

In the past 12 months, in line with rapid growth in copper prices, Chile’s funds have grown to $17 billion from about $3.5 billion. This has encouraged the ministry to explore new investment strategies and move away from traditional central bank investments in liquid, short-duration, high-grade securities required for immediate economic stabilization. So far, the Chileans have outlined plans to move all funds into non-peso investments, with up to 15% going into equities and a further 20% into corporate bonds.

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