GSIS sets ROI target for $1-B foreign investment fund

State-owned Government Service Insurance System (GSIS) has set a strict return-on-investment requirement for the global fund managers which will be awarded the mandate to manage the agency’s $1-billion investment into capital markets overseas.

The state pension fund said the move is to safeguard the fund from any potential high-risk investments or abuses.

 In line with its Global Investment Program (GIP), the GSIS has set a requirement of an annual eight-percent floor on return on investments and a ceiling of seven percent on the portfolio volatility for the global fund managers that will be awarded the mandate to manage the $1- billion fund.

The winning fund managers will be given enough flexibility on where the assets will be allocated so long as they meet the benchmark set by GSIS.

GSIS president and general manager Winston Garcia has also reaffirmed the agency’s commitment to the local capital market despite its plan to invest overseas.

“We’re still very much present in the local investment scene. We just want to take advantage of opportunities abroad. Despite the fairly good performance of the local bourse, the volume is not yet there to provide us the liquidity we want. Even the securities offered are not varied enough to provide diversification of our investments,” he said.

Aside from tapping global fund managers, GSIS will also obtain the services of a global custodian for the safekeeping of its global assets, income collection, transactions settlement, fund valuation and accounting, compliance monitoring and securities lending.

The fund managers who have made presentations to the GSIS earlier included BNP Paribas, Credit Agricole Asset Management, Credit Suisse Asset Management Ltd., Deutsche Asset Management, ING Investment Management, Northern Trust Global Investment, Pacific Investment Management Co., Goldman Sachs, and Societe Generale.

On the other hand, the companies vying to be tapped as the custodian of GSIS’s billion dollar funds include State Street Bank and Trust Co., JP Morgan Chase N.A. (Hong Kong) and Citibank N.A.

The GIP is one of the primary strategies of the GSIS to diversify its loans and investments portfolio by tapping the international capital market.

This as the agency seeks to obtain consistent positive investment returns with capital preservation and sufficient liquidity over a three-year period.

The program is also consistent with the good investment practices of public pension funds like the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) as well as the direction being taken by Asian neighbors such as the National Social Security Fund of China, the Government Pension Fund of Thailand and the Employees’ Provident Fund of Malaysia.

GSIS has built up its asset base from P180 billion in 2001 to more than P433 billion as of the first half of 2007.