SBS Resolution No. 0008-2007: Approving the Regulation for Investment of Pension Funds Abroad

Lima, January 4, 2007
S.B.S. Resolution
No. 8-2007
The Superintendent of Banking, Insurance and
Private Pension Fund Administrators

WHEREAS:
That, subsection q) of article 25 of the Single Ordered Text of the Law of the Private System of Pension Fund Administration, approved by Supreme Decree No. 054-97-EF and its amendments, hereinafter the Single Ordered Text of the Law, allows the AFPs to invest in financial instruments issued or guaranteed by States and Central Banks of foreign countries; as well as in shares and securities representing rights over shares on deposit registered in Stock Exchanges; in debt instruments, participation quotas of mutual funds and risk hedging operations issued by foreign institutions;

That, likewise, the Third Final and Transitory Provision of the Regulation of the Single Ordered Text of the Law, approved by Supreme Decree No. 004-98-EF and its amendments, hereinafter the Regulation, empowers the Superintendency to issue the regulatory rules necessary for the proper functioning of the Private System of Pension Fund Administration;

That, by SBS Resolution No. 167-2003 the Regulation for Investment of Pension Funds Abroad was approved;

That, in order to achieve greater diversification in the investment of the resources of the Pension Funds and of the Encaje, as well as to obtain a higher risk-adjusted return, for the benefit of the affiliates, it is convenient to broaden the alternatives of eligible investment instruments or operations abroad;

In accordance with the opinion of the Deputy Superintendency of Risks, the Economic Studies Management, the Deputy Superintendency of Private Pension Fund Administrators and the Deputy Superintendency of Legal Advisory; and,

In use of the powers conferred by the General Law of the Financial System and the Insurance System and Organic Law of the Superintendency of Banking and Insurance, Law No. 26702 and its amendments, article 25 of the Single Ordered Text of the Law, and the Third Final and Transitory Provision of the Regulation of the Single Ordered Text of the Law;

RESOLVES:

Article One.- To approve the Regulation for the Investment of the resources of the Pension Funds Abroad, which is part of this Resolution.

Article Two.- This Resolution shall enter into force on the day following its publication in the Official Gazette El Peruano, from which date the Regulation for Investment of Pension Funds Abroad, approved by SBS Resolution No. 167-2003, shall be without effect.

Register, communicate and publish.
JUAN JOSÉ MARTHANS LEÓN
Superintendent of Banking, Insurance and
Private Pension Fund Administrators

REGULATION FOR THE INVESTMENT OF PENSION FUNDS ABROAD
CHAPTER I
GENERAL PROVISIONS
Scope
Article 1.- This Regulation establishes the provisions that regulate the investment of the resources administered by the AFPs in the investment instruments or operations indicated in subsection q) of article 25 of the Law.
Definitions 1
Article 2.- For the purposes of this Regulation, the following terms shall be understood to refer to:
a) Preferred Shares: Shares that present characteristics typical of debt securities such as providing a fixed cumulative dividend and an early redemption option, b) Preference Shares: Shares that, not being preferred, grant some better right or privilege in relation to ordinary shares. c) AFP: Private Pension Fund Administrators. d) Mutual funds: Mutual funds (open funds), investment funds (closed capital fund), Unit Investment Trust, Investment Company; Société d'Investissement à Capital Variable, UCITS, patrimonies of exclusive purpose, SPV (special purpose vehicles), Limited Partnership and other collective investment schemes with similar characteristics that the Superintendency determines. e) Depository institutions: Institutions authorized by the regulatory authorities of the securities and/or financial markets to provide centralized deposit services for investment instruments or operations. Such services include the registration of investment instruments or operations issued by book-entry; the physical safekeeping activities of investment instruments or operations; the clearing and settlement of transactions; and the collection and payment of benefits, on a scale that involves a significant portion of the assets in circulation in the securities markets. f) Convertible instruments: Debt securities that grant the holder or the issuer the option to convert them into another type of instrument or asset. g) Law: Single Ordered Text of the Law of the Private System of Pension Fund Administration, approved by Supreme Decree No. 054-97-EF. h) Majority: Shall be understood as a percentage greater than fifty percent (50%). i) Exercise price: Pre-established price at which the purchase or sale of the underlying asset of the option contracts must be made, in case the right granted by them is exercised. j) Superintendency: Superintendency of Banking, Insurance and Private Pension Fund Administrators. k) Mutual fund management companies: Institutions duly authorized and supervised by the regulatory authorities of the securities and/or financial markets to manage mutual funds and place their participation quotas among investors. Eligible instruments and operations 2
Article 3.- The AFP is authorized to invest abroad the resources it administers in the following categories of investment instruments or operations:
a) Instruments representing rights over short-term obligations or cash assets; b) Instruments representing rights over obligations or debt securities; c) Instruments representing rights over equity participation or share securities; and, d) Derivative instruments. e) Alternative instruments.
The investment instruments or operations belonging to the categories indicated in the preceding subsections must be expressed in the currency of a State that possesses international risk ratings for its long-term debt securities, in accordance with the rating equivalences set forth in Title X, granted by at least two of the rating companies.
CHAPTER II
REQUIREMENTS FOR INVESTMENT IN ELIGIBLE
INSTRUMENTS AND OPERATIONS
Requirements for investment in eligible instruments and operations 3
Article 4.- The AFP shall be responsible for evaluating and determining the eligibility of the investment instruments or operations, in accordance with the provisions of Title VI of the Compendium of Superintendency Regulatory Rules of the Private Pension System. Said evaluation must be recorded in the Eligibility List indicated in subsection b) of article 162 of the aforementioned Title. Likewise, the AFP must keep in its Investment File Archive the supporting documentation that has been used by the AFP to determine the eligibility and investment decisions of the investment instruments and operations.
Instruments representing rights over short-term obligations or cash assets and Instruments representing rights over obligations or debt securities 4
Article 5.- This article applies to offers regulated under foreign regulations, regardless of the nationality of the issuers. The requirements for investment in the investment instruments indicated in subsections a) and b) of article 3 are:
a) They must be issued via public offering, or private offering directed to institutional investors. In the case of private offering, the issuance must be subject to the regulatory framework of the pertinent regulatory entity of the country in which the offer is constituted. b) In the case of negotiable instruments, these must be recorded in accounts registered in depository institutions. c) They must have sources of continuous prices and permanent dissemination. d) They must possess at least one credit risk rating corresponding to the specific issue, both for primary and secondary offering. Said rating must be granted by one of the rating companies indicated in Title X on rating equivalences. In the case of primary offerings, the investment instrument must have at least one (01) preliminary risk rating granted by one of the rating companies indicated above. Said risk ratings must be updated at least annually. 5 e) Non-negotiable time deposits in financial institutions may not have a term greater than one year. Time deposit certificates issued by financial institutions must be negotiable investment instruments. f) Debt securities must have a value not less than fifty million United States dollars (US$ 50,000,000) per series or its equivalent in the currencies indicated in article 3. In the event that the debt securities are components of the profitability benchmark indicator determined by the AFP in the investment policy of each type of Fund, within the framework established in Chapter XIII of Title VI of the Compendium of Rules of the SPP, the requirement indicated in this subsection may be excepted. g) Debt securities that form part of a Medium Term Notes program must individually comply with the limits and corresponding regulations. h) Investment instruments that have the characteristic of being convertible instruments may only be exchanged with investment instruments that comply with the provisions of this rule and of Title VI of the Compendium of Rules of the SPP, as applicable. i) Investment instruments representing securitized assets correspond only to patrimonies of exclusive purpose (trust patrimonies or patrimonies of special purpose companies), made up of assets that comply with article 31 of Title VI of the Compendium of Rules of the SPP. Likewise, the patrimonies must have financial statements audited annually by independent auditing firms with recognized experience that carry out operations in more than ten (10) countries that possess international risk ratings of at least "A" for their respective long-term debt securities. j) Structured investment instruments issued by foreign issuers comply with the provisions established in Subchapter VIII of Chapter III of Title VI of the Compendium of Rules of the SPP. k) The non-negotiable time deposits mentioned in subsection e) or debt securities may have a yield linked to a currency other than the currency of denomination (currency linked deposits or currency linked notes). Said currencies
must comply with article 3. l) Debt securities issued by a financial institution may have a pass-through structure with the objective of achieving a reduction of costs and greater flexibility in accessing markets. Real Estate Investment Trust 6
Article 5-A.- The AFP may invest the resources of the Managed Portfolios in Real Estate Investment Trusts (REIT), which comply with the following requirements:
a) Be listed on some centralized trading mechanism. b) The total value of the patrimony must not be less than fifty million United States dollars (US$ 50,000,000), or its equivalent in the currencies indicated in article 3.
Instruments representing rights over equity participation or share securities 7
Article 6.- The requirements for investment in the investment instruments indicated in subsection c) of article 3 are set forth in articles 18 and 18A of Title VI. Preferred shares must comply with the limits and regulations applicable to debt securities.
Shares of listed companies whose exposure corresponds to alternative instruments must comply with the provisions of article 18B of Title VI.
Derivative instruments 8
Article 7.-
In accordance with the provisions of subsection d) of article 3, the AFP may invest the resources of the Managed Portfolios in operations with derivative instrument contracts complying with the provisions of Title VI.
Additionally, the clearing houses of the futures and options exchanges must be supervised by the competent authorities of the securities and/or financial market of a State referred to in the last paragraph of article 3.
The risk committee of the AFP approves the list of clearing houses applicable to centralized and non-centralized trading mechanisms, considering, among others, their patrimony, volume of contracts traded, degree of compliance with obligations arising from contracts, experience, regulatory systems to which it is subject by virtue of the competent regulatory bodies and authorities of its jurisdiction, self-regulatory systems implemented, regulation and control systems over counterparties and the type of safeguard against contract non-compliance of counterparties. Derivative instrument operations in which the clearing houses indicated in the preceding paragraph participate must be carried out through clearer brokers that are duly authorized to operate in said clearing houses. In that sense, before carrying out this type of operations, the risk unit of the AFP must carry out a due diligence report of the clearer brokers, in order to evaluate, among other aspects, those established in article 146 of Title VI, as applicable. The format of said report must be established in the procedure manuals of the AFP. Participation quotas of mutual funds 9
Article 8.- The mutual funds in which the pension funds invest must be evaluated considering, at least, the following aspects:
a) 10That the management companies, the investment advisors and the mutual funds must be supervised and regulated as such by the corresponding authorities of the securities and/or financial market of a State that possesses for its long-term debt securities the minimum international risk rating defined by the AFP in the investment policy. b) That the management company has relevant experience in the administration of mutual funds. c) That the participation quotas of the mutual fund are liquid according to the market in which they are traded. d) That the valuation of the investment portfolios of the mutual funds is carried out daily, respecting international standards and best practices for valuation and presentation of results. e) That they invest in instruments representing rights over short-term obligations or cash assets, loans granted by companies of the financial system, instruments representing rights over obligations or debt securities; instruments representing rights over equity participation or share securities listed on a centralized trading mechanism, and derivative instruments; in a combination of these or in the indices that have been constructed from said instruments. Likewise, investments may be made in mutual funds solely with the objective of facilitating the operability and liquidity and/or financing of the fund's investment transactions in the short term. Limited investment in other instruments is permitted as long as it is in accordance with best market practices for traditional mutual funds. f) That if they are constituted as synthetic funds, their investment objective consists of replicating a market index. g) That the management company prepares documentation related to the status of the fund's investments (detail of the investments made), which must be sent to investors periodically. The AFP must define in the investment policies of each type of pension Fund, minimum requirements applicable to mutual funds that mitigate the risks of said instruments and the selection process for these. Said process must consider at least the following: i) number of years of experience of the management company in the administration of mutual funds, ii) minimum amount of assets managed by the mutual fund management company or the entities that perform such function, iii) value of the minimum patrimony of the mutual funds, for which it must consider the treatment of master-feeder structures, among others. Participation quotas of alternative mutual funds 11
Article 9.- Alternative mutual funds are those whose investment policies and regulations governing their operation substantiate that their investment strategy corresponds to Venture Capital Fund, Private Equity Fund, Private Debt Fund, Real Estate Fund, Hedge Fund, Commodity Fund and Infrastructure Fund.
12
The AFP may invest in this type of funds as long as they comply with the following requirements:
I. Requirements applicable to the management company: 13
a) The management company must show a direct relationship in patrimonial and management terms with the parent company or the group to which it belongs. b) The functions corresponding to the investment advisor and/or the management company must be performed by entities that are regulated and supervised as investment advisors by the corresponding authorities of the securities and/or financial market of a State that possesses for its long-term debt securities an international rating not less than "BBB-", granted by at least two rating companies indicated in Title X. Additionally, said authorities must have regulations containing minimum requirements referring to: the establishment of fiduciary responsibility, requirements for the information provided and contracts entered into with their clients, having a code of ethics governing their operations, maintenance of books and accounting records. c) The investment advisory functions performed by the designated entity must be clearly defined, specifically delegated and materialized through a specific contract in accordance with market standards. d) The management companies, or the entities that perform such function, must have at least five (5) years of experience in the administration of the specific strategy of the alternative mutual funds. e) The amount of assets managed by the management company or the entities that perform such function, in the specific strategy of each type of alternative mutual fund defined in this article, must not be less than five hundred million United States dollars (US$ 500,000,000), or its equivalent in the currencies indicated in article 3. The sum of the final value of liquidated funds and the amount of committed and subscribed capital of the funds in force (previous experience of the last 10 years) is considered, where applicable, as managed assets. Assets managed under segregated account modalities, investment mandates or others of a similar nature are not considered within said assets. f) The management companies must undertake to periodically inform the Superintendency of the valuation of the corresponding quota values of the alternative mutual funds, with the same frequency as it is sent to the fund's participants, considering the use and

1 Article replaced by SBS Resolution No. 3233-2015 published on 06-09-2015.
2 Article replaced by SBS Resolution No. 2809-2018 published on 07-23-2018.
3 Article amended by SBS Resolution No. 1293-2014 published on 03-03-2014 4 Article replaced by SBS Resolution No. 3233-2015 published on 06-09-2015.
5 Subsection replaced by SBS Resolution No. 2809-2018 published on 07-23-2018.
6 Article incorporated by SBS Resolution No. 2809-2018 published on 07-23-2018.
7 Article replaced by SBS Resolution No. 3233-2015 published on 06-09-2015.
8 Article amended by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently amended by SBS Resolution No. 6412-2014 published on 09-29-2014.
9 Article amended by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently replaced by SBS Resolution No. 3233-2015 published on 06-09-2015. Subsequently amended by SBS Resolution No. 3973-2016 published on 07-20-2016. Subsequently replaced by SBS Resolution No. 2809-2018, published on 07-23-2018.
10 Subsection replaced by SBS Resolution No. 1657-2021, published on 06-04-2021.
11 Article amended by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently replaced by SBS Resolution No. 3233-2015 published on 06-09-2015. Subsequently amended by SBS Resolution No. 3973-2016 published on 07-20-2016.
12 Paragraph replaced by SBS Resolution No. 2809-2018 published on 07-23-2018. Subsequently replaced by SBS Resolution No. 1657-2021, published on 06-04-2021.
13 Subsection amended by SBS Resolution No. 3973-2016 published on 07-20-2016.

customary practice of the corresponding markets. For this purpose, the AFP must request this commitment before acquiring the instrument.
14
II. Requirements applicable to alternative mutual funds: 15
a) The total value of the net assets must not be less than fifty million United States dollars (US$ 50,000,000), or its equivalent in the currencies indicated in Article 3. In master-feeder structures and parallel funds that comply with the second and third paragraphs of Article 75J of Title VI, the total value of the net assets must be evidenced by the master fund, and by the sum of the parallel funds, respectively. 16 b) 17 c) 18 d) The funds must have financial statements audited annually by independent auditing firms with recognized experience that carry out operations in more than ten (10) countries that have a minimum risk rating of "A" for their long-term debt securities. e) The financial information report (unaudited) must be presented to investors and to the Superintendency at least quarterly. f) The fund must prepare documentation related to the status of the investments (detail of the investments made), which must be sent to investors and to the Superintendency periodically. g) 19 h) It must have fund valuation policies that include a valuation methodology based on the fair value approach, indicating the accounting standards, guides and best international practices used. The basis of the valuation methodology must be available to the Superintendency. 20 i) The distributions of the fund, set forth through the fund's constitutive documents, must comply with the following:
i.1) The AFP may only receive from the funds distributions in cash or eligible investment instruments, during their life as well as at the time of their liquidation. i.2) In the fund's liquidation process, the investments (assets) of the fund that have not been delivered to the AFP may be contributed to the net assets of another fund, "Trust" or similar vehicle, until such assets are sold and cash or eligible investment instruments for the AFPs can be received from such sale. This, as long as the destination fund, "Trust" or similar vehicle is managed by the same management or managing company of the original fund. The management or managing company may not appoint an agent to dispose of such investments (assets) on behalf of the AFP, and the AFP may only receive the distributions directly from the original fund or from the destination fund, "Trust" or similar vehicle, as applicable, before its liquidation. i.3) The rights and obligations of the participants contained in the fund's constitutive documents must remain in force until all the investments (assets) corresponding to all the participants are distributed. j) With respect to the fund's expenses and commissions, these must be transparent and in accordance with those observed in the specific industry. These must be detailed and form part of the financial information that the AFP and the Superintendency periodically receive from the management or managing company. 21
III. 22
IV. Requirements applicable to venture capital, private equity, private debt, real estate and infrastructure funds. In addition to the requirements indicated in section II above, this type of fund must comply with the following: 23
a) Express in numbers of years the maximum term of the fund, which must be in accordance with the specific strategy of the fund. b) 24 c) The investment and divestment period of the fund must be clearly defined. During the divestment period no new investments are made except for those that have been approved in the investment period (follow on investments). d) Except in the case of funds of funds, the management company may not initiate and manage a new fund with substantially identical investment objectives before the end of the investment period or when at least seventy percent (70%) of the committed capital of the fund it currently manages is not invested. For the period in which there is an overlap of funds with substantially identical investment objectives, the management company must have a clear and transparent investment allocation policy. e) 25 f) Have a fee refund mechanism in case it is determined that at the end of the fund's life the management company has charged excess fees with respect to the success fee mechanism proposed in the official documents (clawback clause). g) Have a clause establishing that distributions for success fees or carried interest must be made on the basis of the realization value of the investments. The success fee or carried interest must be calculated on net profits, with the applicable expenses, commissions and taxes being deducted. American waterfall and European waterfall schemes may be applied. 26 h) They must contemplate restrictions and/or limitations on investment in publicly traded instruments, in accordance with the fund's investment object and the guidelines established by the AFP. 27 i) The management company, for a given investment strategy, must invest in cash at least 1% of the fund's committed capital; or failing that, offer a commitment scheme that represents at least said percentage and guarantees a permanent alignment of interests with the participants. In no case may the investment commitment in the fund be made through a reduction of commissions. Said disbursement may be made through entities affiliated (affiliates) with the management or managing company. 28 j) Have a policy regarding the fund's key personnel (key person event policy), in which the key persons for its management are defined, and the circumstances and measures to be adopted in case any of the fund's key personnel ceases to be part of the administration. Additionally, the automatic suspension of the investment period must be contemplated in case its replacement cannot be chosen. k) Have an expense clause in which it is clearly established which counterparty assumes each type of expense (management company and participants). l) Have an indemnity clause in which the circumstances in which the fund assumes the expenses related to this clause are clearly established. Likewise, it must be specified that legal expenses to protect the interests of the fund that are related to fraud, negligence or similar must not be covered by
the funds. m) The participants of the investment fund must arrange for the formation of a surveillance committee that represents their interests, which must: i) be independent of the management company and its related parties, ii) not receive remuneration for the exercise of its functions; iii) review the terms of transactions that involve or may represent conflicts of interest during the term of the fund following the fund's conflict of interest policy, whose modification requires the approval of the fund's participants; and, iv) review the investment valuation guidelines and their modifications as reported by the management company to the fund and the auditors. The fund must only cover expenses related to the holding of assemblies. 29
V. Additional requirements applicable to commodity funds. In addition to the requirements indicated in subsection II above, this type of fund must comply with the following:
a) Have risk measurement methodologies that allow quantifying the total exposure and the specific exposure generated in each component. b) In case the fund's strategy is to replicate a benchmark index, have performance measurement policies with respect to the benchmark index (tracking error policies). c) Have a daily report of the net asset value of the fund. d) The reports provided by the fund must identify the counterparties of the operations, brokers dealers, clearer brokers in the commodity markets, and other main participants of the operations. e) Have daily reports of the operations carried out by the management companies.
VI. Additional requirements applicable to hedge funds: In addition to the requirements indicated in section II above, this type of fund must comply with the following: 30
a) The valuation process must be carried out by an entity independent of the fund's manager or by a valuation committee (pricing committee) of the fund, made up mostly of personnel independent of the fund's manager (investment manager), the management company (general partner) or anyone involved in the investment process. b) Have the "high water mark" criterion in the success or performance fee charging clause, in such a way as to guarantee that there is no duplicate compensation for previously achieved returns. c) They must have policies regarding own-account investment by personnel linked to the management company (personal account dealing clause). d) They must have policies regarding best execution of transactions (best execution policies) and fair allocation of transactions among various accounts (fair allocation); e) They must provide that the entity performing the prime broker function must be authorized, regulated and supervised as such by the securities and/or financial market regulatory authority where it is established. f) They must have risk measurement methodologies that allow quantifying the total exposure and the risk taken through derivative instruments.
VII. The requirements indicated in sections II to VI are not applicable in the case of funds whose objective is to invest in Real Estate Investment Trusts (REITs). This type of fund must comply with the following:
a) The fund is supervised and regulated by the corresponding securities and/or financial market authorities of a State that has, for its long-term debt securities, an international rating of not less than "BBB-", granted by at least two rating agencies indicated by Circular. b) The valuation of the investment instrument is carried out on a daily basis, respecting international principles and standards of valuation and presentation of results. c) The fund's manager has at least five (5) years of experience in the investment strategy of the type of alternative investment. d) The total value of the net assets must not be less than fifty million United States dollars (US$ 50,000,000), or its equivalent in the currencies indicated in Article 3. e) The fund must prepare documentation related to the status of the investments (detail of the investments made), which must be sent to the investors." Scoring of alternative mutual funds 31
Article 9-A.- In addition to the provisions of Article 25 of Title VI of the Compendium of Regulatory Standards of the SPP, the AFP must include in the scoring at least the following aspects:
a) The liquidity of the participation units of the funds corresponds to the uses and customs of the respective markets. b) Potential conflicts of interest, as well as resolution mechanisms. c) Investment and risk management policies. d) The internal policy on the use of derivatives and OTC counterparties. e) Extensions to the fund's term. f) The additional functions of the fund's surveillance committee. g) Policies regarding own-account investment by personnel linked to the management company h) Content of the information in capital calls. i) Additional aspects on co-investments. 32 j) Capital recycling policies during the investment period (recycling). 33 k) Policies on credit subscription lines to finance capital calls. 34 l) Policies on credit subscription lines to the management or managing company to finance its capital commitment. 35 m) Policies on environmental, social and corporate governance (ESG) factors. 36 n) Compensation or offsetting policies on management fees (offsetting management fees). 37 o) Limits on some types of expenses charged to the fund, including expenses shared in a co-investment and with other vehicles involved (organizational, transactional, broker-dealer expenses, indemnification or others). 38 Co-investments 39
Article 9-B.- Investments of pension funds in equity or debt instruments of companies not listed on the stock exchange, including those associated with the infrastructure and real estate sectors, made and carried out jointly, both in the acquisition and in the sale of the investments, with management or managing companies of foreign alternative mutual funds of private equity, private debt, real estate and infrastructure. These investments may be made when, previously, the AFP maintains participation with the resources of the Managed Portfolios in these alternative funds, and additionally the following minimum requirements must be met:
a) The possibility of making a co-investment must be provided for in the official documents of the alternative mutual fund or side letters. b) The amount invested in a co-investment operation must be less than the total amount committed by the alternative mutual fund in said operation. c) The management or managing company of the alternative mutual fund, prior to the co-investment, must make available to the participant, among others, the policies and procedures governing the co-investment practices and processes, cost attribution between the parties, as well as the policies linked to the management of conflicts of interest. d) Once the co-investment is made, the management or managing company must provide specific documentation of the co-investments, including the valuation reports, with the same methodology and periodicity established with the alternative mutual fund. Likewise, the issuers of the securities acquired in the co-investment operations must have financial statements audited annually by an independent auditing firm with recognized experience. The valuation of the co-investments must be audited at least annually by an independent auditing firm with recognized experience. e) The AFP must contractually establish the obligation of the management or managing company of the investment vehicle to send the information on the valuation, including the methodology applied, to the AFP. f) The structure of expenses and commissions must be transparent and in accordance with those observed in the specific industry. These must be detailed, updated and form part of the financial information that the AFP periodically receives from the management or managing company. g) The total sum of expenses and commissions paid for participating in the co-investment operations must be less than the total sum of expenses and commissions that would be paid as a participant of the alternative fund." h) The documents signed by the managing company and the participants where the specific terms and conditions of the co-investments to be made are established must observe the best international practices and market standards.
CHAPTER III
INVESTMENT LIMITS
Maximum investment limits 40
Article 10.- The investments of the AFPs in the instruments or investment operations referred to in Article 3 are subject to the following maximum investment limits:
a) Global limit of investment abroad; b) Limits per issuer, series or management company; and, c) Limits on the execution of derivative instrument operations for hedging and efficient portfolio management.
Global limit of investment abroad 41
Article 11.- The total sum of the investments made abroad must not exceed the maximum investment limit established in subsection d) of Article 25-D of the Law.
Within the investments referred to in the preceding paragraph, the absolute value of the market values of forward, futures and swap contracts on a net basis is considered, as well as the market value of the premiums of the options, that have been made with foreign counterparties. For this purpose, net terms is understood as the existing offset between the market value of a purchase derivative instrument and a sale derivative instrument, as long as they are of the same type and have the same underlying asset. If there is cash in the foreign current accounts due to the delay in the settlement of operations for causes not attributable to the AFP, said cash is not computed in this limit. 42 Limits per issuer or series 43
Article 12.- The investments made by the AFP with the resources they manage are subject to the following limits per issuer, series or management company:
a) The sum of the investments made in the investment instruments issued by the same State, Central Bank or international organization that have, for their long-term debt securities, an international rating of "AAA", in accordance with the rating equivalences that the Superintendency establishes by generally applicable rule, granted by at least two rating agencies indicated in said rule, must not exceed four percent (4%) of the joint value of all the Managed Portfolios; b) The sum of the investments made in the investment instruments indicated in subsections a), b) and c) of Article 3, issued by the same financial institution, non-financial institution, or by the same State, Central Bank or international organization not considered in subsection a) of this article, must not exceed three percent (3%) of the joint value of all the Managed Portfolios; c) For the purposes of computing the limits indicated in subsections a) and b) above, the counterparties of the derivative instruments must be considered, and depending on the category of instrument to which it belongs and the issuer of the underlying asset of the derivative instrument where applicable, the equivalent positions are considered, taking into consideration the methodologies established in Article 77J of Title VI. d) The sum of the investments made in participation units of the same mutual fund, including co-investments, must not exceed five percent (5%) of the joint value of all the Managed Portfolios. 44 e) The sum of the investments made in participation units of the same mutual fund, including co-investments, must not exceed thirty-five percent (35%) of the sum of the net asset value of said mutual fund and the co-investments. 45

41 Article amended by SBS Resolution No. 1963-2010 published on 02-26-2010, and subsequently by SBS Resolution No. 5003-2014 published on 08-05-2014. Subsequently replaced by SBS Resolution No. 3233-2015 published on 06-09-2015.
42 Paragraph incorporated by SBS Resolution No. 1657-2021, published on 06-04-2021.
43 Article amended by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently amended by SBS Resolution No. 6412-2014 published on 09-29-2014.
44 Subsection replaced by SBS Resolution No. 1657-2021, published on 06-04-2021.
45 Subsection replaced by SBS Resolution No. 1657-2021, published on 06-04-2021.

f) The sum of the investments made in the investment instruments described in subparagraphs a) and b) of Article 3 shall not exceed thirty-five percent (35%) of the value of each outstanding series.

g) The sum of the investments made in the investment instruments indicated in subparagraph c) of Article 3 shall not exceed five percent (5%) of the value of each outstanding series.

Article 13.-
46

Article 13A.-
47

CHAPTER IV
TRADING
Markets (trading venues)

Article 14.- The trading of the instruments or investment operations referred to in Article 3 may be carried out on the centralized trading mechanisms authorized in Peru and/or abroad. However, in the case of the investment instruments and risk hedging operations referred to in subparagraphs a), b) and d) of Article 3, trading may also be carried out on foreign OTC markets.

For this purpose, trading on foreign OTC markets shall be restricted to brokers-dealers, financial institutions, institutional investors and mutual fund management companies that are duly authorized, regulated and supervised by the competent authorities of the corresponding markets.

Acquisition and disposal

Article 15.- The period for the settlement of transactions carried out with the instruments or investment operations indicated in Article 3 shall not exceed the number of days representing the usages and customs established in the corresponding markets (trading venues).

The recording of purchases and sales in the assets of the Managed Portfolio shall be made on the same day of the trading, and must be supported by the corresponding confirmations and settlements, except in special circumstances where, due to time differences, the support of the operation is made on the following day. The charges and credits in the current account of the Managed Portfolio for the payment or collection of purchases or sales, as applicable, of the instruments indicated in Article 3, shall be made on the settlement date, under the delivery versus payment modality.

The AFPs may not enter into repurchase or sale agreements or other similar agreements that affect the resources they manage. Nor may they pledge or give as guarantee the investment instruments acquired with such resources, except as provided in Article 16. Likewise, they may not acquire instruments or investment operations that are subject to pledge, seizure, prohibitions or limitations of any kind, both with respect to their acquisition or disposal, and with respect to their flows or the recovery of the investment.

46 Article amended by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently repealed by SBS Resolution No. 6412-2014 published on 09-29-2014.

47 Article incorporated by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently repealed by SBS Resolution No. 6412-2014 published on 09-29-2014.

Guarantee margins 48

Article 16.- The investment instruments that may be delivered as guarantee margin or delivered and received as collateral must correspond to any of those indicated in subparagraphs a), b) and c) of the aforementioned Article 3, complying with the provisions indicated in Article 53K of Title VI.

In the case of contracts entered into in centralized and non-centralized trading mechanisms in which central clearing houses participate, the guarantee margins may be delivered to the clearer brokers referred to in Article 7, so that they comply with the requirements of the clearing houses regarding the operations carried out by the Managed Portfolios.

CHAPTER V
CUSTODY
Custody current accounts

Article 17.- The AFPs shall open current accounts in the name of the Funds and resources they manage, denominated in any of the currencies indicated in Article 3, in financial institutions of the country or abroad designated by the respective foreign custody institutions contracted by the AFP.

In the case of foreign financial institutions, if they are not the custody institutions themselves, they must have a risk rating, for their long-term debt, of not less than "A" and for their short-term debt of not less than "A-1", in accordance with the rating equivalences that the Superintendency establishes by Circular, granted by at least two of the rating companies indicated in the aforementioned Circular. These accounts shall be used exclusively to make the charges and credits resulting from transactions carried out with the instruments or investment operations referred to in the aforementioned Article 3 in local or foreign markets. The interest and any other gain generated by these accounts must be credited in favor of the managed resources.

Custody 49

Article 18.- The AFP maintains the total value of the investments made in the instruments or investment operations indicated in Article 3, acquired with the resources it manages and capable of being held in custody, in foreign custody institutions that are in the Eligibility List referred to in subparagraph b) of Article 162 of Title VI, and must have the corresponding Investment File Archive.

50

To provide the custody service, such foreign custody institutions must satisfy the following requirements:

a) Be a financial institution that is constituted as a global custody institution, duly registered as a custody institution before the corresponding authority of any State referred to in the last paragraph of Article 3;

b) Be a participant, directly or through a subcustodian, in the depository institutions of the foreign investment instruments or operations, except for the investment instruments or operations that, due to the nature of their issuance, are not registered in the depository institutions;

48 Article amended by SBS Resolution No. 11153-2008 published on 11-23-2008. Subsequently amended by SBS Resolution No. 6412-2014 published on 09-29-2014.

49 Article amended by SBS Resolution No. 3973-2016 published on 07-20-2016.

50 Paragraph amended by SBS Resolution No. 1293-2014 published on 03-03-2014. Subsequently amended by SBS Resolution No. 3973-2016 published on 07-20-2016.

c) Maintain a risk rating of its long-term debt of not less than "A", and of its short-term debt of not less than "A-1", in accordance with the rating equivalences that the Superintendency establishes by Circular, granted by at least two of the rating companies indicated in the aforementioned Circular. In the event of a reduction in the rating of the corresponding custody institution such that it represents a risk category lower than the minimum established in this subparagraph, the AFP shall be unable to continue operating with said custody institution, unless it complies with the requirements indicated in the following paragraph.

Alternatively, if the custody institution does not comply with the previous requirement, it must satisfy the following requirements: (i) have as one of its main income-generating activities the custody business; (ii) have extensive experience providing custody services among pension fund systems; (iii) have at least one rating, granted to it or to any of its debt instruments, that complies with the guidelines established in the previous paragraph, in accordance with the equivalences that the Superintendency establishes by Circular; and (iv) that the average equity of the custody institution over the last three years is not less than two hundred million United States dollars (US$ 200,000,000) or its equivalent in the currencies indicated in Article 3. Likewise, the custody institution may use subcustodians, which must have at least one risk classification;

d) Be capable of opening and administering cash accounts and securities accounts in the name of the managed resources, guaranteeing the operation of a centralized archive with daily updating of the detailed information of the instruments or investment operations that form part of the Managed Portfolio;

e) Guarantee the execution of the credits and charges corresponding to the rights and obligations of the instruments or investment operations that form part of the Managed Portfolio and that are subject to custody;

f) Execute and verify the compensation and settlement process of transactions carried out with the instruments or investment operations that form part of the Managed Portfolio and that are subject to custody;

g) Guarantee the conservation and integrity of the instruments or investment operations under custody, whether they are in physical safekeeping or in transit, through the coverage of insurance policies contracted for these purposes;

h) Value daily the instruments or investment operations that form part of the Managed Portfolio and that are subject to custody; and,

i) Provide the Superintendency, at the time and in the manner it determines, with all information concerning the services provided to the AFPs and the resources they manage.

The local securities clearing and settlement entities authorized by the Securities Market Superintendency (SMV) may also carry out custody and complementary services on instruments or investment operations indicated in Article 3, it being the responsibility of the AFP to evaluate that the custody and complementary services to be contracted with the local securities clearing and settlement entity do not contravene the regulations where the foreign instruments or investment operations are issued or traded. 51

Custody contract

Article 19.- The custody contracts that the AFPs sign with foreign custody institutions must be sent to the Superintendency before their entry into force and must include the following minimum stipulations and obligations of the custody institution:

51 Paragraph incorporated by SBS Resolution No. 3973-2016 published on 07-20-2016.

a) Declaration by the foreign custody institution that it complies with the requirements indicated in Article 18. For this purpose, in addition to the supporting documentation of the case to be presented by the custody institution, a report issued by an international auditing firm shall be attached to the contract stating its opinion or observations regarding compliance with the operational and custody procedure requirements indicated in the aforementioned Article 18. Said auditing entity must have a recognized international prestige and be registered as such before the corresponding regulatory body of any State referred to in the last paragraph of Article 3;

b) Submission of the foreign custody institution to the pertinent provisions indicated in this Regulation;

c) Include a clause stating that the breach of one or several of the requirements established in Article 18 shall be grounds for termination of the custody contract;

d) Commitment of the custody institution that any debts the AFP may have with it may not in any case be enforced against the instruments or investment operations that form part of the Managed Portfolio and that are subject to custody;

e) Obligation of the custody institution to send the AFP a report of movements each time a transaction occurs with the instruments or investment operations referred to in Article 3, or with their rights or obligations;

f) Obligation of the custody institution to provide the Superintendency, periodically, with a report detailing the movements and the stock of the instruments or investment operations subject to custody, using the format included in Annex I of this regulation or direct access to the custody accounts through computer means. Likewise, the obligation to provide the Superintendency with any information it requires, in the modalities and formats that the Superintendency determines;

g) Commitment of the custody institution not to carry out operations not authorized by current regulations with the instruments or investment operations subject to custody, under any of their modalities;

h) State that the custody institution is the sole party in charge of and responsible for the transport and transfer of accounts of the corresponding instruments or investment operations;

i) Specify the responsibilities that the custody institution assumes for acts or omissions before the AFP; as well as the declaration of the custody institution to the effect that it assumes direct responsibility for the conservation and replacement of the instruments or investment operations before the AFP and the respective Managed Portfolio in the following cases: 1) in any case of loss generated within the physical scope of the custody institution; or, 2) when the loss occurs while the instruments or investment operations included are in transit;

j) In case the parties include a clause by which the parties are empowered to terminate the contract before its expiration, without cause, prior notification with a period of thirty (30) calendar days shall be necessary;

k) Include a clause by which the custody institution authorizes the Superintendency so that, when the latter considers it necessary, it may verify the instruments or investment operations that form part of the Managed Portfolio and that are held in custody in its facilities and the records of those held in subcustodians or centralized securities and/or instruments depositories.

In the event of a breach by the custody institution, the AFP must terminate the contract and contract the service with another custody institution that effectively complies with the requirements established in this Regulation.

In the event of any loss with respect to the instruments or investment operations in custody, without prejudice to the responsibility corresponding to the custody institution, the AFP must cover the amount equivalent to the value of the referred instruments or investment operations lost, as well as the respective interest, according to the conditions and terms determined by the Superintendency.

FINAL PROVISIONS
Information to the Superintendency 52

First.- The information referred to purchases and sales of investment instruments and risk hedging operations, securities lending, coupon payments, maturities, current accounts designated by the foreign custody institution, guarantee margins and others, must be sent by the AFP to the Superintendency through the Daily Investment Report referred to in Article 103 of Title VI of the Compendium of Regulatory Superintendency Rules of the Private Pension Fund Administration System, approved by Resolution No. 052-98-EF/SAFP and its amendments, on the day following these transactions.

Responsibility

Second.- Without prejudice to the AFP's right to seek recourse against the custody institution, the losses or impairments generated by actions attributable to the custody institutions shall be covered by the AFP itself, and may not, in any case, affect the resources it manages.

Exception to the custody requirement and to the requirements for the constitution of time deposits with resources from custody current accounts.

Third.- The Superintendency, by Circular, shall determine for each case the instruments or investment operations that, due to their characteristics, the nature of their issuance or the usages and customs of the market, shall not be subject to the custody procedure established in this Regulation, indicating instead the registration and information reporting procedures that shall apply.

Likewise, those time deposits constituted for the purpose of earning returns on the balances maintained in the custody current accounts of the managed resources shall be exempt from the custody requirement and from compliance with the requirements established in subparagraphs b) and c) of Article 5.

Custody of non-foreign instruments or operations

Fourth.- Foreign custody institutions that comply with the requirements of this Regulation may carry out the custody of non-foreign instruments or investment operations traded on centralized trading mechanisms or over the counter (OTC) markets abroad acquired with the resources managed by the AFPs.

Risk classification

Fifth.- For the purposes of the provisions of this Regulation, the risk classification equivalences and the rating companies that the Superintendency approves by Circular shall be considered. The classifications must be related to the rating granted to the issuer's debt in foreign currency. In case of divergence between the ratings granted, the equivalence corresponding to the highest risk rating shall be considered valid.

Likewise, when a State, Central Bank, international organization, custody institution, financial institution or non-financial institution has more than one rated investment instrument, short or long term, for the purposes of the provisions of this Regulation the highest risk rating assigned to said instruments shall be considered.

52 Final Provision amended by SBS Resolution No. 10464-2009 published on 08-14-2009

Authorized centralized trading mechanisms and clearing houses

Sixth.- For the purposes of the provisions of Articles 6 and 7, the centralized trading mechanisms and clearing houses that the Superintendency authorizes by Circular shall be considered. 53

Non-compliance with eligibility criteria

Seventh.- In case the instruments or investment operations cease to comply with the eligibility criteria established in this regulation, the AFPs must sell the respective holdings of the instrument or operation within the period approved by the Superintendency in each case, considering the adjustment plan presented for this purpose by the respective AFP.

Eighth.-
54

Delegated mandate

Ninth.- The Superintendency shall regulate the investment of the resources managed by the AFPs in the instruments indicated in Article 3 of this regulation that are made through the subscription of portfolio management contracts, or delegated mandates, entered into with portfolio or investment instrument or operation management companies or firms.

TRANSITORY PROVISIONS
Exception to compliance with the issuer limit

First.- The issuer limit indicated in subparagraph b) of Article 12 is not applicable in the case where the investments in the instruments indicated in subparagraph c) of Article 3 have been made through a share exchange process for shares issued by legal entities constituted in Peru. Instead, the issuer limit applicable to the respective foreign institution shall be the one that the Superintendency establishes in each case on the day following the completion of the corresponding exchange process, so as to safeguard the interests of the managed resources. Likewise, in each case, the Superintendency shall determine the period for adjustment to the issuer limit indicated in subparagraph b) of Article 12.

Adjustment of the custody contract

Second.- The AFPs must adjust their custody contracts within the period approved by the Superintendency in each case, considering the adjustment plan presented for this purpose by the respective AFP.

Investment in derivative instruments and shares of alternative mutual funds. Requirements

Third.- The AFPs must demonstrate to the Superintendency that they have the infrastructure and resources necessary to be able to invest in derivative instruments and shares of alternative mutual funds, including the capacity to manage the risks of said instruments and to arrange and settle the operations of the instruments or investment operations committed in the investment process.

53 By SBS Resolution No. 1293-2014, the process of evaluation, approval and registration of centralized trading mechanisms and clearing houses, among others, was transferred to the AFPs through the establishment of the Investment File Archive referred to in "Chapter XVI Investment File Archive" and "Chapter XVII Evaluation of the eligibility of investments and support of investment decisions for Pension Funds" of Title VI of the Compendium of Regulatory Superintendency Rules of the SPP, approved by Resolution No. 052-98-EF/SAFP and its amendments.

54 Final provision eliminated by SBS Resolution No. 1293-2014 published on 03-03-2014