On August 3, 2022, the Ministry of Finance and Public Credit (the “Ministry”) issued Decree 1458 of 2022 (the “Decree”), in which it partially regulated Article 2 of Law 2112 of 2021 and amended Decree 2555 of 2010 regarding the investment regime of the Pension and Severance Fund Management Companies (as per its acronym in Spanish “AFPs”). The Ministry introduced the applicable regulations regarding the mandatory 3% investment in Private Capital Funds (“PCF”) and/or private debt funds related to Colombian companies or productive projects by the AFPs; the formula to calculate the 3% of the resources that the AFPs must invest as a minimum; the exceptions to such calculation and the transition regime applicable to the AFPs to adopt all the necessary modifications.
In addition to the above, the following aspects are highlighted:
1. The Decree applies to the AFPs and to any company to which the current regulations apply to make investments in PCF and/or in private debt with resources coming from mandatory pension funds. This also includes the so-called “Funds of Funds”. According
to the regulatory document published by the Financial Regulation Unit (“URF”) related to the regulatory proposal that was finally enacted, the computation of the underlying asset (investments in Colombian companies or productive projects) applies equally to funds domiciled in Colombia or abroad.
2. The AFPs must make a minimum investment of 3% of the sum of the resources they manage in the respective Moderate Funds, Higher Risk Funds and Programmed Withdrawal Funds in PCF and/or private debt that invest in Colombian companies or that carry out productive projects in Colombia.
3. For the computation of the 3%, the investment in assets whose main activity is developed in Colombia shall be taken into account as long as they comply with the rules established in articles 2.6.12.2.3 (Professionalism) and 2.6.12.2.4 (Conditions of the Investment Policy) of Decree 2555 of 2010.
4. The Decree, excludes the following investments from the 3% calculation:
a. Investments made by the PCFs in (i) extractive companies of the mining and energy sector; (ii) entities economically linked to the respective AFP; and (iii) entities belonging to the same business group or financial conglomerate of the AFP. It is understood that a company is classified as “extractive of the mining and energy sector” when more than 50% of its income comes from the exploration, exploitation and/or production of minerals and hydrocarbons.
b. Exceptions to the above are those PCF that allocate two thirds of the resources they receive as contributions from their investors to infrastructure projects, provided that they comply with the requirements outlined in the Decree.
5. Investment commitments not exceeding 60% of the total value of the commitments made by the AFP to each of the PCFs may be included in the 3% calculation. This is subject to a transition regime that seeks to gradually reduce the maximum percentage of commitments that may be computed. After 10 years, the percentage must be equal to 0%.
6. If the investments are below 3%, due to insufficient supply in the market, the AFPs may breach this threshold as long as they submit to the Financial Superintendence of Colombia a technical analysis, a due diligence report and a strategy for future investments.
7. Finally, the Decree establishes a transition regime of nine (9) months in which the AFPs must make modifications to their investment policies, internal procedures, reports and other instruments to comply with the provisions of the Decree.