GSIS and SSS: Going global

By Increasing member benefits and costly bad investments in the past have stepped up the pressure for state-owned pension funds to earn more. And with the relatively small size of the country’s stock and fixed income markets, the SSS and the GSIS have both set their sights on the overseas market to boost their investment returns.

An outward view on investing may be ironic, with the Arroyo administration desperately seeking for more foreign investments, and especially, coming from state pension funds.

Critics have warned that given the generally weak dollar (and in the same token, the strong peso), a decent payback for investments to be made abroad may be wishful thinking.

There are also worries that the pension funds or their advisers would end up mishandling their overseas investments, a valid concern if one would look at how some of their ventures turned out. Some labor groups believe these funds should instead be invested locally to create more jobs.

Making sense

But given pension funds’ rising requirements as more benefits are given out, and as their pensioners live longer lives, and on the one hand with the falling interest rates in the Philippine financial system, does going overseas make sense?

Or would money leaving the country’s financial system only drag the economy? As a member of either of these two pension funds, how should one view this step?

Anytime now, GSIS will announce the fund manager who will handle its $1-billion overseas investment program. Based on the terms of reference, it should be able to give GSIS an asset return of at least eight percent annually and a volatility limit of seven percent.

Meanwhile, compared to the GSIS, SSS’s plan is still on a very preliminary stage, since the size of the fund it has in mind is less than half of the size what GSIS  has in its program.

Nothing new

Investing abroad is actually nothing new.

It has been an investment practice of other pension funds worldwide; among which is the California Public Employees Retirement System, one if not the largest public pension fund in the world and whose investments are spread out around the world.

The idea is to diversify one’s risks and increase investment yields. GSIS, for instance, aims that with the overseas investment strategy, it would be able to improve its investment return to 11 percent annually from the current seven percent to not just serve the needs of its members today but to actually lengthen its actuarial life.

In previous months, GSIS had been rationalizing its investments in the Philippine stock market, selling stocks at premium price, starting with the sale of about P25 billion worth of stock including those held in San Miguel Corp.

It then plans or perhaps is now re-entering the market in a more professional manner to eventually set up a stock index fund which it will unitize and sell to investors.

This only means that even with plan to go overseas, GSIS funds will continue to pour into the local markets. And it has no choice but to do just that, especially since it is currently awash with cash reserves of about P300 billion that cannot stay idle for a long time.

Meanwhile, news reports have quoted SSS president Corazon de la Paz as saying that the pension fund is allowed under its charter to invest 7.5 percent of its total reserved assets currently at P230 billion, but she said it may not have to invest that much outside should there be investment opportunities here in the country which would give good return.

Under its charter, the SSS is limited to invest only as much as 30 percent of its fund in stocks. And with the fund almost at that limit, it is now eyeing the sale of its stake in Equitable PCI Bank to free up more funds for possible stock investments abroad.

Everything will be decided by the pension fund for private sector workers in early 2008.

Again, this is a clear indication that state pension funds are highly liquid. Ideally these funds should not stay in their coffers and should be invested elsewhere rather than stay idle. Or else face the prospect of being depleted as the fund continues to increase members’ benefits without a corresponding growth in its investment yield.

Caution

Sen. Loren Legarda has advised GSIS and SSS that given the forecasts that the US dollar may fall to P30 in two years’ time from the current seven-year low of around P44,it should perhaps go slow on the plan. She thinks two years from now might be an even better time to invest because by then the pension funds would need fewer pesos for their dollar investments.

It should be an advice well taken, especially since these funds are hard-earned contributions of the people. Although come to think of it, from a fund manager’s perspective, with that kind of view, will there really be an even better time?

The Trade Union Congress of the Philippines, who is criticizing the plan, said SSS and GSIS should instead be investing their funds here in the country so the money can directly and indirectly create jobs locally. It reminded the two agencies that they are not only duty bound to safeguard and grow the money, but to also use it in such a way that would lead to best interests of the Filipino workers, a point very well taken.

Taking all these views, I agree that the proposed move is uncharted territory for Philippine state pension funds, but that doesn’t mean it is a wrong move.

Given the growing demand of its members and the limited size of our economy, going overseas is perhaps in order; and given the huge amount of money involved, the mistakes they’ve made in the past and the current volatility in the global financial markets, extreme caution should very well be taken.

Smart Collegiate basketball awards

The forthcoming Collegiate National Championship organized by the Collegiate Champions League (CCL) and presented by Fil-Oil Flying V Sports will have as highlight the granting of special collegiate basketball awards. This was made possible by the chairman of BAP-Samahang Basketbol sa Pilipinas (BAP-SBP), Manuel V. Pangilinan, who provided an additional P500,000 prize fund for outstanding team and individual performances during the CCL games.

To be called “smart Collegiate Basketball Awards,” these are: Most Valuable Player(awardee of MVP Cup), Members of Mythical Teams, Best Defensive Team, Coach of the Series and the Best Performing Referee.

All the exciting games starting 10th November 2007 will be covered by Solar Entertainment. Watch for it.

‘Pag-usapan Natin’ at IBC-TV 13

Watch “Pag-usapan Natin,” a segment of the IBC-TV 13 news program News Tonite, from 10:30 pm to 11 pm (Mondays to Fridays) as we discuss issues that have relevance to our everyday living. Viewers may send their comments to Sunshine Television c/o Valle Verde Country Club, Pasig City.   

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street,Salcedo Village, 1227 Makati City. Or e-mail me at [email protected].