The Maharlika Fund starts to take shape
Landbank president and CEO Lynette Ortiz — (photo by Eugene Araneta)
MANILA -The CEO of Land Bank of the Philippines (Landbank)—which is mandated to contribute P50 billion to set up Maharlika Investment Corp.—is confident that the new law creating the much-debated sovereign wealth fund contains enough safeguards to protect the Filipino people’s money.
In a recent interview with Inquirer, Landbank president and CEO Lynette Ortiz also said the Maharlika Investment Fund (MIF) “should be able to raise equity and debt from international and local investors, and it can consolidate and allocate all that capital to projects and investments that will deliver sufficiently high returns.”
The upcoming fund would provide the means to fund projects and securities that are fairly long-term in nature, she said. “It’s also a balance to make sure that you meet minimum hurdles and invest in whole gamut of investment options, not just infrastructure projects to ensure proper portfolio diversification.”
Ortiz will sit on the board of Maharlika Investment Corp., the sole vehicle for the purpose of mobilizing and utilizing the MIF, which will have an initial capitalization of P125 billion out of the P500-billion authorized capital stock.
Asked whether she’s happy with the way Congress has structured the fund, Ortiz said, “I think a lot of safeguards have been put in place.”
“Abiding by the Santiago Principles is very critical, and so is disclosure and transparency and integrity in asset management, making sure that you have the right people, professionals who have the qualifications, the credentials and good standing in the investor community. I think those are all in the law,” she said.
The Santiago Principles refer to the 24 generally accepted principles and practices endorsed by the International Forum of Sovereign Wealth Funds members. Among others, the principles aim to ensure that sovereign wealth funds invest on the basis of economic and financial risk and return-related considerations, and have in place a transparent and sound governance structure that provides adequate operational controls, risk management and accountability.
Asked whether Landbank will divert part of its government securities portfolio investment to put up Maharlika Investment Corp., Ortiz said, “Cash is fungible, as you know. We do have liquidity that we will allocate for this investment.”
Ortiz, the first Filipino country head of Standard Chartered Bank Philippines, has over three decades of experience in banking and finance. She had held leadership roles in risk management, treasury, corporate finance and capital markets. The law mandates her as CEO of Landbank to sit on the nine-member board of Maharlika Investment Corp.
“For us who will be sitting on the board, we will ensure that there are proper policies for governance and that strategic objectives of the fund are really carried out,” she said.
According to the law, the objective of MIF is to “promote socioeconomic development,” which will be achieved by “making strategic and profitable investments in key sectors to preserve and enhance long-term value of the fund.”
It also aims to obtain “optimal absolute” return and “achievable financial gains” as well as to “satisfy the requirements of liquidity, safety/security and yield in order to ensure profitability.”
On the lineup of projects, Ortiz noted that Finance Secretary Benjamin Diokno, who will chair the Maharlika corporate vehicle, had relayed that there were 194 infrastructure projects to choose from.
“I think that requires study when the board comes together. There’s an advisory body and there will be key officers in the fund,” Ortiz said.
“For the Maharlika Investment Corp. and for the fund itself, it will have to assess the most viable investment based on a risk/return criteria. What’s important and critical will be the team installed to run the fund and the appropriate portfolio allocation and strategy that they will establish,” she said.
While the government has yet to decide who will run the fund, Ortiz said there were many Filipinos with immense talent, both global and local, to choose from.
“I have no doubt that the advisory body will vet the right person and recommend for the President’s approval. We all know that the leadership of the fund, the CEO including the chief investment officer, the chief risk officer, and all who will sit on the board — will be very critical for the fund to be successful,” she said.
While the national government and certain government financial institutions like Landbank will put up the initial capital of Maharlika Investment Corp., Ortiz said the fund could eventually source external equity like the Indonesian and Malaysian sovereign wealth fund models. She noted that Singapore’s Temasek, on the other hand, also goes to the market to offer bonds.
“To be able to attract all that will be through the articulation of the fund’s objectives and portfolio strategy, risk appetite and risk management policies,” Ortiz said. “It’s still a long way to go, but it’s the right direction.”
Aside from Landbank, the national government itself will provide P50 billion to capitalize Maharlika Investment Corp., while Development Bank of the Philippines will contribute P25 billion.
The national government’s contribution will be sourced from dividends paid out by the Bangko Sentral ng Pilipinas, share in the income of the Philippine Amusement & Gaming Corp. and privatization proceeds.
The law gives room for the resulting fund to source investments from “reputable private and state-owned financial institutions and corporations.”
