Capital Markets Newsletter – March 2022

The Superintendence of Banking, Insurance and Private Pension Fund Administrators («SBS») issued the Prudential Trading Guidelines for the Sale of Shares in Alternative Funds by the AFPs (the «Guidelines») and amended Circular Nº AFP 123-2011 (the «Investment Policy Circular»).

By Circular Nº AFP-179-2022 published on March 25, 2022 in the Official Gazette «El Peruano» (the «Circular»), the SBS adopted the Guidelines, in order to provide a defined legal framework for the cases in which the Private Pension Fund Administrators («AFPs») wish to carry out sales transactions of shares in local alternative investment funds and/or foreign alternative mutual funds, in which the resources of the pension funds have been invested.

The Circular provides that sales transactions led by the AFP, whatever their nature, in which only the economic rights and/or obligations of the said shares are transferred, without transferring the ownership thereof, are not allowed.

For their part, the Guidelines mainly establish the following:

1. The AFP, prior to the transaction, must carry out an analysis and evaluation of at least: (i) the reason for the sale of the shares; (ii) the choice of the type of secondary sale, which must seek to obtain a reasonable value; (iii) the effects of the transaction on the short, medium and long term diversification policy of each type of pension fund involved; and (iv) the rights and obligations of the pension funds arising from the sale transaction, including possible contingencies;
2. Have an adequate disclosure and allocation of costs during the entire sale process for the parties involved. The AFP is the one who must assume the costs of legal, accounting or tax advice within the framework of the transaction;
3. Have a valuation independent from that of the buyer in the case of a bilateral negotiation;
4. The transaction must not be carried out with a related company or one that is part of the AFP’s economic group;
5. Identify and mitigate conflicts of interest;
6. That the sale is approved by the Investment Committee and evaluated by the Risk Committee within the framework of its competence; and
7. That the sale transaction is executed by personnel with knowledge of this type of transaction;

The Circular also adds provisions to section I of the Annex to the Investment Policy Circular regarding the inclusion of the alternative fund sales policy within the AFP’s general divestment policy, which must contain at least: (i) the types of sales transactions; (ii) the process for selecting intermediaries, agents and/or advisors; and (iii) the policy for allocating the costs to be assumed by the AFP.