Following Decree 1393 of 2020, on April 26, 2021, the Colombian Superintendence of Finance (SFC) published Circular 007 of 2021 related to the investment regime of pension funds, and of insurance and capitalization companies. The Circular furthers the adoption of the recommendations made by the Capital Markets Mission in 2019, particularly in connection with the incorporation of ESG standards into their portfolios.
The Circular entered into force on April 26, 2021. In accordance with the provisions of Decree 1393 of 2020, pension funds must consider the Circular’s provisions to formulate their corresponding investment policies. The deadline for the pension funds to update their policies expires on July 26, 2021. 

The main changes to the investment regime of pension funds are as follows:

1. The Circular does not define specific investment limits for pensions funds, but rather delegates to their boards of directors the responsibility of defining their own investment limits, especially the following: 

• Investment limits with respect to private equity funds (PEFs), real estate mutual funds, PEFs incorporated abroad, ETFs, hedge funds, foreign funds whose main purpose is to invest in real estate assets, and mandatory convertible bonds. 
• Investment limits per fund: maximum percentage of investment of the pension fund within the total investment commitments of each PEF. 
•  Individual limits for each type of admissible investment under paragraph 1.10 of article 2.6.12.1.2 of Decree 2555. Thus, pension funds must establish individual and differentiated investment limits for debt, equity, and infrastructure private funds. 

However, it is not clear how the limits for complex PEFs, such as those than mainly invest in infrastructure-debt, will work. As the Circular did not clarify it, it may have to be defined by the respective investment policies of the pension funds. 

2. The pension funds must include in their investment policy a special chapter on alternative investments in which they develop the following points: (i) models and methodologies for measuring and assessing the risk associated with alternative investments, (ii) processes to identify, measure, monitor and report the financial and operational risks of alternative investments, (iii) selection criteria of alternative investments, (iv) analysis of suitability and experience of the professional manager and the fund management company, (v) analysis of the commission structure and remuneration policies of the investment vehicle, and (vi) analysis of the integration and ESG methodologies in the vehicle investment process, among others. 

3. The Circular sets forth that the investment policies of the pension funds must incorporate criteria related to the objectives, risks, and management of environmental, social, and corporate governance (ESG) and climate issues. This seeks to encourage the investment of pension funds in securities that meet these characteristics. Pension funds will, therefore, prioritize their investments in professional managers who demonstrate that they really have incorporated ESG criteria into their investment and divestment policies.

4. The Circular strengthens corporate governance of the pension funds and establishes standards of conduct and professionalism for the management of their investments. It includes measures to guarantee that the members of the risk and investment committees have the knowledge and experience necessary to perform their duties. 

5. The Circular includes special rules for cases in which pension funds are part of financial conglomerates and sets guidelines for calculating limits for restricted investments.