GSIS scraps global investment program

MANILA, Philippines—Pension fund Government Service Insurance System is bringing back to the Philippines its entire $670-million offshore investment, taking the view that local assets could be more lucrative given the country’s favorable economic momentum.

A GSIS source told the Inquirer that the pension fund’s board voted during its March 31 meeting to repatriate the funds under its global investment program (GIP), noting that returns from foreign placements fell below the minimum 9-percent target since the pension fund started its offshore investing in 2008. In peso terms, the actual average return on the GIP was less than 6 percent during the period.

The new GSIS leadership felt that there were more attractive investments available locally without the fund having to take foreign exchange risks, the source added.

The pension fund will give its offshore fund managers two months to unwind the GSIS’ investment, the source said. The GSIS, historically an influential institutional investor in local financial markets, intends to plow the funds into liquid peso-denominated instruments like fixed-rate treasury notes (FXTNs), stocks listed on the Philippine Stock Exchange as well as in some dollar-denominated Philippine global cash bonds, or ROPs.

At the same time, the recall of its offshore investments could boost funds for the GSIS’ participation in the government’s public-private partnership (PPP) program in infrastructure building, whether as a contributor of seed money for a fund being put up by the government or as a direct investor in promising PPP projects, the source said. The GSIS earlier committed to fork out P50 billion out of the P200-billion state-initiated PPP credit facility, which will also involve the Social Security System, Land Bank of the Philippines and Development Bank of the Philippines.

The GSIS is also very keen on investing in prospective real estate investment trusts (REITs), which allow investors to acquire direct interests in a pool of finished property projects that generate good recurring cash flow.

The source said the GSIS would inform the Bangko Sentral ng Pilipinas about the forthcoming repatriation of funds, aware of the potential upward pressure the inflow would create on the peso exchange rate against the dollar. But the net impact is estimated at only $200 million to $250 million in foreign exchange inflow stretched out over an eight-week period as part of the $670-million exposure is covered by a hedging facility that sufficiently addresses the conversion of foreign exchange into peso.

About $450 million of the GSIS’ existing overseas exposure is in the Amundi balanced fund managed by Credit Agricole which, in turn, invests in fixed-income securities in developed markets as well as equities mostly in developed markets and some Asian markets. The remainder is managed by institutional fund manager Pimco, the world’s biggest fixed-income fund manager. The Pimco fund, being heavy on emerging market funds, had actually performed better than the GIP average at 8.5 percent.

The recall of the GIP was backed by no less than the GSIS’ new president, Robert Vergara, a Harvard-educated MBA graduate who spent most of his professional life abroad trading in global financial markets.