Profitability of Chile's defined-contribution-based pension system during the multifund era

This paper analyzes the profitability of Chile's retirement multifund system - funds A, B, C, D, and E - since its launch in 2002. The analysis shows that the rates of return on the funds are highly correlated across pension fund administrators (PFAs) and that risk-adjusted returns on these funds may not exceed those on domestic fixed- or variable-income indices. The paper also explores the existence of herding. Specifically, Granger causality tests show that leaders may significantly influence the benchmark in fund C, whereas PFAs' asset allocations in funds A and E are more likely to reflect past changes in the benchmark.