The state-run Government Service Insurance System (GSIS) will hire two foreign fund managers to invest a total of $800 million overseas in a bid to diversify the pension fund’s portfolio and almost double its rate of investment returns.
“The global market is performing very good these days. The returns of our [domestic] investments [in fixed-income assets] average 5.5 percent, below our ideal rate of 9 percent [a year]. We want to beat that, that’s why we have a risk conservative approach,” GSIS president and general manager Jesus Clint O. Aranas told reporters Tuesday.
At present, global investments account for only 10 percent of the pension fund’s total assets, said Gracita Gilda V. Bocanegra, senior vice president at the GSIS’s fund management group.
While the GSIS does not have a specific target for the share of its global investments against the total, Bocanegra said the additional $800 million would raise the ratio to about 13-14 percent.
Bocanegra said they were hopeful that they could award the contracts to the two fund managers this year.
Based on its multiasset strategy released last week, the GSIS said that tapping external fund managers would allow the pension fund to “take advantage of diversification and opportunities for higher returns.”
“For this purpose, the GSIS sets aside $800 million of its portfolio in foreign currency-denominated instruments in line with its plan of hiring two external fund managers for the multiasset strategy, who will be given a mandate of up to $400 million each,” it said.
“The external fund managers will acquire, manage and dispose the assets of the multi-asset strategy fund in accordance with an investment management agreement consistent with the guidelines for the multiasset mandate, GSIS said. “Except as otherwise provided in [their agreement], the fund manager will have full discretion over the management of the fund,” it added.
Aranas said they wanted to diversify their portfolio and take on “alternative” investments as they expected benefit claims and payments to surpass premium contributions.
At present, the GSIS’s actuarial life is 31 years or until 2049 even as global standards are as long as 43-45 years, Bocanegra said.
Aranas said they wanted to extend the fund life to 50 years or until 2068.
However, Bocanegra noted that pension funds worldwide were constrained by the low interest rate environment. “Hopefully as global markets stir up inflation we can increase our fund life,” she said.
Meanwhile, Aranas said the GSIS’ profit jumped 52.52 percent to P84.15 billion during the first 11 months of 2017 from P55.17 billion as of end-November 2016.
Total assets grew 8 percent during the 11-month period to P1.09 trillion.