Sovereign wealth funds and PH's Maharlika Fund | Inquirer Business

Sovereign wealth funds and PH’s Maharlika Fund

/ 03:01 PM December 05, 2022

A sovereign wealth fund (SWF) is a state-owned investment fund that consists of money generated by the government, often derived from a country’s surplus reserves. SWFs provide benefits to a country’s economy and its citizens.

The funding for an SWF can come from a variety of sources. Popular sources are surplus reserves from state-owned natural resource revenues, trade surpluses, bank reserves that may accumulate from budgeting excesses, foreign currency operations, money from privatizations, and governmental transfer payments.

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In general, sovereign wealth funds usually have a targeted purpose. Some countries have sovereign wealth funds that can be similar to venture capital for the private sector.

In some countries,  commodity-based SWFs are designed to optimally manage the windfall from the disposition of natural resources for the benefit of future generations, recognizing that  natural resources are exhaustible and commodity prices are uncertain in the long run.

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There are non-commodity-based SWFs which are designed to manage the accumulated foreign assets from persistent external trade surpluses and surpluses of stgate-owned enterprises, with the objectives of preserving the value of their capital and realizing returns on investments to keep the long-term sustainability of the fund.

In the Philippines, House Bill No. 6398, filed by House Speaker Martin Romualdez, seeks to establish a P275- billion state-owned sovereign wealth fun aimed at maximizing the profitability of investible government assets and support the administration’s economic agenda.

HB No. 6398, also known as the Maharlika Investments Fund Act, is patterned after the SWFs of 49 countries, including Singapore, China, Hong Kong, South Korea, Malaysia, Indonesia, Taiwan, Vietnam and East Timor.

The Maharlika Wealth Fund (MWF) would draw resources primarily from contributions from the Government Service Insurance System (GSIS), Social Security System (SSS), Land Bank of the Philippines (LandBank) and Development Bank of the Philippines (DBP).

The measure proposes an initial investment of P250 billion from the GSIS, SSS, LandBank, and DBP, as well as P25 billion from the national government.

Subsequent annual contributions may come from the Bangko Sentral ng Pilipinas, Philippine Amusement Gaming Corp., and the national budget.

MWF funds will be invested in a wide range of outlets including foreign currencies, metals, fixed-income instruments, domestic and foreign corporate bonds, listed or unlisted equities, mutual and exchange-traded funds, commercial estate and infrastructure projects.

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To ensure transparency and accountability, the MWF would adhere to the Santiago Principles.These are the 24 generally accepted principles and practices agreed to in October 2008 in Santiago, Chile, among countries with SWFs, investment recipient countries and international organizations.

The stakeholders committed that SWFs will comply with all applicable regulatory and disclosure requirements in countries in which SWFs invest, and that the SWFs will have in place a transparent and sound governance structure that provides adequate operational controls, risk management and accountability, among other commitments.

Maharlika Investment Corp. will be administered by a nine-man board of directors, whose members will represent the contributing government financial institutions. The board will also include two independent directors.

The bill was filed by Romualdez, majority leader Manuel Jose Dalipe, senior deputy majority leader Ferdinand Alexander Marcos, Tingog Reps. Yedda Marie Romualdez and Jude Acidre, and House appropriations panel senior vice chair Rep. Stella Luz Quimbo on Monday.

Maharlika, which means a warrior class, was a term used and popularized by the late President Ferdinand Marcos Sr. as a propaganda tool to refer to his guerrilla unit during World War II.

The bill’s explanatory note said the Maharlika fund could be used to manage foreign reserves and attract direct investments, citing the success of Singapore’s GIC and the Indonesia Investment Authority.

But in other countries, such funds have become a source of corruption. Malaysia’s 1MDB sovereign wealth fund was used as part of a multibillion-dollar corruption scheme that implicated former Prime Minister Najib Razak, who received millions of dollars in bribes.

Najib was convicted in 2020 and landed a 12-year jail sentence and a 210 million ringgit ($46.88 million) fine for illegally receiving $10 million from a unit of 1MDB.

Source: Inquirer Archives, Investopedia, asia.nikkei.com

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