It was a desperate appeal to regulators: Step in, they were urged, and put a stop to this reckless behavior. It came as Chilean pension funds were making outsized bets on US interest rates, more than a year before a painful blowup left them billions of dollars in the red.

But the warnings weren’t from an internal whistleblower, or an especially savvy investor looking into the books. Instead, they came from executives at the pension funds, who in private conversations with regulators were begging for rules to prevent them from doing exactly what they were doing — loading up on volatile derivatives.

People familiar with the conversations, which haven’t previously been reported, said the executives explained the risky trade had been so lucrative that they couldn’t act unilaterally without giving up returns that rivals would continue to earn. The system penalizes funds that underperform peers.

Now, delays in heeding that call is coming back to haunt the country’s pensioners, who fund the $230 billion industry with mandatory contributions, after a surge in US borrowing costs sparked losses.

Lawmakers are furious, retirees are anxious and regulators are under scrutiny as the public demands answers about how things went so bad so quickly, and who will be held accountable. It’s another example of the global fallout from the bearish turn for US Treasuries after the war in Iran sent energy costs surging, resulting in everything from currency-market intervention in Japan and a Federal Reserve rate hike to a pensioner in Chile who says she will now have to delay her retirement.

“All I can do is watch the market and see if the situation turns around,” said Margarita Saldía, 57, a public-sector employee who says she’ll need to postpone her retirement by a couple of years after seeing the value of her accounts sink.

The pension regulator declined to comment on whether the funds had asked for rules that could have reduced the risk. Joaquín Cortez, who heads the body, told local newspaper El Mercurio on Thursday that it isn’t his place to assess the funds’ investment decisions.

It’s hard to overstate how quickly things went wrong. Just eight months ago, the foreign interest-rate derivative positions at the funds, known as AFPs, showed a $2.1 billion mark-to-market gain. In September, they were staring at a negative $7.7 billion market value.

“The regulator can impose limits to reduce the risk, but the assumption is that there is a fund manager who is an expert on this matter,” said Matías Acevedo, an economics professor at Universidad de los Andes. “The question is why they took such a long-duration position. Given that it clearly wasn’t a good strategy for members retiring today, they should explain what the impact is.”Chilean workers are required to participate in the pension system, and savers have five different funds to choose from, designed with different levels of risk depending on the owner’s age.

The funds that were supposed to be the most conservative, so-called E funds meant for people near retirement, were the ones most exposed to the soured US rate bets. They’ve lost an average 10.4% this year, including a 4.9% drop in September alone, when the US bond rout accelerated.

That month, the C and D funds — which manage almost half of the pension system’s assets and also hold some of these bets — lost 3.1% and 4.2%, respectively. Most people approaching retirement are in Fund D, according to the industry association.

Adding to the pressure, the AFPs face an early-November deadline to comply with tighter derivatives limits imposed by the regulator in April, after months of exchanges with the funds over the risks of the positions. That means funds holding assets that are still above the caps will be forced to sell and lock in losses.

All but one pension fund either declined to comment or didn’t reply to requests. AFP UNO said the weaker performance of the conservative D and E funds should be viewed against their long-term investment horizon, noting that both posted positive annualized returns over the three- and five-year periods through September.

Some of Chile’s AFPs are owned by large international companies. They include AFP Habitat, owned in part by Prudential Financial Inc.; AFP Cuprum, partially by Principal Financial Group Inc.; and AFP Provida, by MetLife Inc.

To be sure, Chile’s pension funds were still worth about $10.7 billion more in September than at the start of the year, a gain of 4.8%. The riskiest A fund was up 8.6% over the period, while the B fund gained 5.3%.

Cortez said in the El Mercurio interview that the regulator had warned the AFPs about dangers surrounding the derivative positions back in 2024 and in January 2025 demanded they modify policies to manage that risk.

The pension blowup is particularly painful for Chile, which has long taken pride in a model designed in the era of the so-called Chicago Boys — a group of economists trained at the University of Chicago who shaped the 1970s free-market reforms under Augusto Pinochet — and frequently cited as an example abroad. The system replaced a state-run retirement system with individual savings accounts managed by competing private firms, a model that inspired similar efforts in regional peers including Peru, Mexico and Colombia.

The system was credited with deepening local capital markets and boosting savings. But it has also faced decades of criticism over low pensions and the risks shouldered by workers. The mounting discontent helped animate 2019 street protests and also fanned a series of mass withdrawals totaling almost $52 billion during the pandemic.

That culminated in a sweeping 2025 pension reform that broke years of political deadlock and introduced measures to boost accounts, including mandates for employer contributions. The overhaul preserved the AFPs and individual accounts, while also seeking to narrow longstanding retirement-income gaps. Now, the derivatives debacle is putting the system under renewed scrutiny.

Several Chilean lawmakers are seeking explanations from the regulator and other government agencies, while asking the comptroller general to determine whether the pension watchdog acted properly.

“The damage to people’s retirement savings could be incalculable, particularly for those who are closest to retirement,” said independent lawmaker Jaime Araya, who signed one of the several formal requests sent to the regulator.

Araya is also demanding that the AFPs disclose detailed information on the impact of the losses and tell individual savers how their retirement accounts have been affected.

Meanwhile, Socialist lawmaker Daniel Manouchehri is seeking the studies, legal and technical reports, communications and other documents underpinning the new derivatives limits and compliance timetable. He also wants to know whether the securities regulator, Finance Ministry and other authorities coordinated responses to the risk of margin calls and broader threats to financial stability.

“Often, regulators haven’t had the guts to act firmly on these issues,” Araya said.

The unprecedented exodus of savings during the pandemic withdrawals is what had initially pushed the AFPs toward interest-rate derivatives. They viewed the swaps as a cheap way to build exposure to long-term interest rates.

The strategy paid off for a time. It helped drive the E funds to an average gain of 8.1% last year, their best performance since 2019.

But by April, the funds were exposed to swings of about $131 million for every one-basis-point move in yields, up from about $10.6 million in early 2024, according to a Citigroup analysis. Yields on benchmark 10-year Treasuries peaked at 5.36% earlier this month, up from below 4% in February.

Exactly how much the AFPs have unwound — and how many more contracts they need to close before the November deadline — remains unclear. Their positions have shrunk, but the cost of getting out has continued to climb as rates move against them.

The industry association said that it rejects the characterization of the derivatives trades as bets, arguing that they are a standard tool for managing fixed-income portfolios over long periods. “It is a long-term strategy,” the AFP association said in a statement. “Fixed-income funds around the world use derivatives to adjust the timing and maturity of cash flows, and they are an important part of investment strategies.”For Chileans nearing pension age, though, the debate is not over who is responsible but rather a more immediate concern: what to do next.

Danitza Ortiz, an independent pension adviser with about 15 clients approaching retirement, has one blunt piece of advice: “Don’t even think about retiring now.”Instead, she is telling clients to give their savings time to recover before drawing a pension. “You have to ride out the plunge,” she said, warning that further losses could follow in the coming months as AFPs continue unwinding some of the swaps positions that backfired.