GSIS reports 5 percent growth in investments

MANILA, Philippines – The Government Service Insurance System (GSIS), the state pension fund for government employees, reported yesterday a five-percent increase in the total value of its investments as of last month.

GSIS said that under the agency’s global investment program (GIP), the total value of investments as of Sept. 30 grew by P1.250 billion.

“This is a significant achievement, especially since we’re just barely five months into the program,” said GSIS president and general manager Winston Garcia.

Garcia said that while GSIS invests its funds abroad, it would shy away from the United States market for now because of the financial meltdown there.

“The absorptive capacity of the local market is just too limited for the investible funds of the GSIS, thus we have to take advantage of opportunities overseas,” he said.

Along with naming ING and Credit Agricole as the fund managers for the GIP, the GSIS had also assigned Citibank, N.A. as the global custodian of the funds.

US investment banks Lehman Brothers and Merrill Lynch have gone bankrupt while US insurer American International Group (AIG) is also facing a financial crisis. These developments have reverberated beyond American shores and have sent jitters across the globe.

Garcia reiterated that the GSIS has no exposure in Lehman and AIG, explaining that GSIS’ investments under the $1-billion investment program are fully diversified, not only geographically but also in terms of asset class.

He said the GSIS is preparing for the second stage of the GIP.

“As a matter of prudence, we have required all our potential bidders to disclose their exposure in the US market. Because of this economic turmoil, that will be a part of our consideration. We have to require them to make the proper disclosure, especially their asset-backed or mortgaged-backed investments,” he said.

The GSIS decided to invest abroad so that it could meet future claims and benefits of its members.

The GIP is consistent with the good investment practices of public pension funds like the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, 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.

“I always tell our critics not to fall prey to knee-jerk reactions. We have a three-year window for the GIP. Based on the early results, I can assure our members that we are headed in the right direction,” Garcia said.

“At the same time, when things go bad, we should not press the panic button immediately. We’re in for the long haul. Any educated judgment on the performance of the investment should be rendered at the end of the program, not a few months into it. That’s why it’s called long-term investments.”

Earlier, critics of the GSIS hit the pension fund’s selection of Citibank as global custodian because it is based in New York, is a major Wall Street player and that there are speculations that it stands on thin ice.

“I don’t know why some people have issues with this (selection of Citibank). As the one charged with the safekeeping of the GSIS’ assets intended for global investments, Citibank will be responsible for the income collection, transactions settlement, fund valuation and accounting, compliance monitoring, transition management, and securities lending related to the program. They’re just the custodian,” he said.

The GSIS held a very competitive selection process in choosing the fund managers for the program. In inviting foreign asset managers to vie for the mandates of the GIP, the GSIS published the Request for Proposal and the Terms of Reference for the GIP in its website (www.-gsis.gov.ph) for all interested and qualified parties to see and review. A total of 36 global fund managers and four global custodians submitted their proposals.

The GSIS also set a requirement that only fund managers with at least $100 billion in assets under management (AUM) will qualify.

The GSIS chief added that the GIP model, which has a budget of up to $1 billion dedicated solely to different investment instruments overseas, was able to withstand the full, initial impact of Lehman’s fold-up. – Iris Gonzales