Stocks in traffic
Hoorah! Just a few days ago, the P640-billion pension fund of government employees, the GSIS, announced that it would put more money in the booming stock market.
In fact, the announcement of such a sensitive plan, which could in a way influence trading at the Philippine Stock Exchange, came from the GSIS top honcho himself, its president and general manager Robert Vergara. Vergara was not just talking about coffee money here. He disclosed that the pension fund in effect would put some P20 billion more of its money—well, OK, its members’ money—in the stock market.
He even cited some favorite sectors of the GSIS such as banks and property companies, plus what he termed as “conglomerates,” which in the Philippine capital market-setting are not exactly countlessly numerous. Really, you can count them with your fingers.
From what I heard, anyway, long before Vergara made public his stock investment plan, the GSIS already appointed two new fund managers for its foray into the market, who should sort of direct the money traffic between the GSIS and the stock market. By the way, those fund managers are certain to earn millions upon millions of pesos in fees and commission from the GSIS stock market placements.
To begin with, the market portfolio of the pension fund should, by the end of 2013, easily hit P140 billion, based on Vergara’s plan to put P20 billion more into the stock market in the next nine months. There—it should mean that about 20 percent of the GSIS money—well, OK… but you know what I mean—should by the end of the year be placed in some paper investments.
For according to Vergara, the stock market is going strong as investors and players are anticipating the credit-rating upgrade of the Philippines to “investment grade” by the various international credit rating agencies. He was, to use his own word, “optimistic.”
Normally such optimism of the top man of a P640-billion fund, backed up by a handsome amount of some P20 billion, even unabashedly telling the world about it, should have a beneficial influence on the market. In a surprising turn of events, just as news broke about the GSIS grand design for its stock investments in 2013, share prices at the PSE weakened somewhat in the past few days. Hmmm.
It is hard to say whether or not the slide in share prices at the PSE and the GSIS announcement of its P20-billion additional placements in stocks could just be pure coincidence.
Now, everything is not exactly looking rosy in the GSIS finances. Only last year, or just two years into the Aquino (Part II) administration under our leader Benigno Simeon (aka BS), the GSIS already saw a huge drop in its net income. Reports said that one of the main reasons for the drop was the sharp increase in the fund’s expenses, which grew by more than P10 billion in 2012. The more interesting fact was that last year, the GSIS operating expenses hit some P70 billion.
In other words, that was the amount of money that the GSIS had to spend to collect money from its members, manage the same money through all sorts of investment schemes and then keep the money safe so that the GSIS can continue to give pension to its retired members.
Based on word going around in the IT scene, the GSIS is also resuming its spending on technology, regularly bidding out more work. From what I heard, it seems that IBM is enjoying—again—the good graces of some top executives in GSIS.
That was the same company that the GSIS, during the time of the cute administration of Gloriaetta, sued for P150 million in damages for alleged faulty software for the GSIS computerized system for payout to its members, and then to return the compliment, IBM filed a P200-million libel suit against GSIS.
It seems that IBM and the GSIS have become friends again under the Aquino (Part II) administration. From what I heard, a former IT executive of GSIS also has been in touch with some GSIS executives, pushing for some contracts.
The high operating expenses of the pension fund was already the target of a congressional inquiry several months ago, as Sen. Franklin Drillon, for instance, attacked the high allowances and bonuses that the GSIS gave to its board of trustees, amounting to millions of pesos a year.
By the way, based on word from GSIS insiders, there is a clash between management headed by Vergara and the board of trustee, or at least a group in the board said to be headed by Karina David, the former chair of the Civil Service Commission.
The main issue seemed to be about the GSIS payout to its members, which the management agreed to raise last year, partly causing the drop in the fund’s income. In terms of the financial health of the fund, Vergara himself estimated that the increase in the payout would lessen the so-called actuarial life of the fund by only a year.
Still, under the previous cute administration of Gloriaetta, the GSIS management actually decided as a matter of strategy to increase the actuarial life of the fund each year, instead of decreasing it, even by just a year.
Vergara also reportedly noted that media—meaning, those nosy reporters—should not look at the increase in the GSIS expenses in isolation. After all, the GSIS posted other incomes. You know—such as its still-just-paper gains from stock purchases.
In a way, it is highly likely that the GSIS strategy is simply to make its supposed gains in the stock market cover for the increase in its expenses, including the 20-percent increase in its operating expenses. After all, the boss himself is—what was the word again—“optimistic” about the stock market’s performance this year. Perhaps he has a foolproof crystal ball.
For really now, what happens to the fund if he is wrong?
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The Bahrain World Economic Summit (Philippines) Inc. (BWESPI) is scheduled to hold a pre-summit orientation for business in the Philippines on March 22 at the Manila Hotel.
The orientation should provide a preview of business opportunities in Bahrain and other Gulf states for Philippine business, according to the organizing BWESPI, led by its chair Roa Jacob Sevilla. Recently the group already held a road show in Cebu City as preparation for the summit. For more information, visit the website at www.arabphilecosummit.com.
