Philippine Pension Fund fails to reveal extent of losses in global investment program, top union official says

The Philippine Government Service Investment System (GSIS), a state-managed pension fund for government employees, has failed to reveal the extent of losses incurred by its Global Investment Program (GIP) in the aftermath of the global financial crisis, according to a top union official in the Philippines. Instead, Trade Union Congress of the Philippines (TUCP) Secretary-General Ernesto F. Herrera said the fund’s management attempted to mislead members and critics by passing off foreign exchange gains for investment income.

GIP funds are invested in fixed income instruments, mostly government bonds; global equities, and global property securities. Overall, equity and property securities investments made by GSIS suffered significant losses in the quarter ending September 30, and those positions have deteriorated further. In the period from April 1, about the time the investments were made, to October 17, global equities investments by GSIS were down overall 38.46%. GSIS investments in global property equities were collectively down 34%.

The GIP is a high-profile investment initiative undertaken by GSIS early this year involving investment of up to $1 billion in member contributions in international securities, an amount GSIS says is too large to be absorbed in the Philippines. According to GSIS, $600 million was invested through ING Investment Management (ING) and Credit Agricole Asset Management (CAAM) in April, with each fund manager responsible for approximately $300 million.

Under pressure from TUCP, the Philippine Senate, and GSIS members — 80% of whom are said to be public school teachers — GSIS reported on October 10 that it had earned a 5.65% return on its $600,000 investment. However, Herrera said it appears that GSIS actually showed depreciation of the Philippine peso against the U.S. dollar, or paper currency gains, as return on investment, and that in dollar terms, the GIP may have actually lost up to $50 million as of September 30.

GSIS signed investment management agreements with ING and CAAM on February 13. That day, the peso traded at PhP40.95 to the dollar. The initial GSIS investment of PhP25.12 billion at PhP40.95 would have been equivalent to $613 million. On September 30, the peso exchange rate had depreciated to PhP47.05 to the dollar, making the PhP26.54 billion reported by GSIS worth just $564 million. 1f40 Instead of earning PhP1.420 billion, or about $30 million as reported, the GIP could have lost $48.9 million, a loss of eight percent, in dollar terms.

This is significant because the GIP investments are in US dollars and other foreign currencies, not Philippine pesos.

“Now that we have had time to more closely examine the GIP investments, we see why a significant loss is likely the reality,” said Herrera. “This is true not just for US and EU investments, but for Asia as well. Asian equities GSIS invested in were down 32% in the two quarters ending September 30, and down over 45% as of October 17,” Herrera explained. GSIS equity investments in the EU were down 41.6% as of October 17 and its US equity investments were down 28%.”

Property securities GSIS invested in also suffered sharp losses. As of October 17, US the fund’s property securities investments were down 33%; EU, 28%; and Asia a stunning 38%.

Herrera said that TUCP and independent researchers are continuing to examine the impact of the global financial crisis on the GIP, even as GSIS president and general manager Winston Garcia reportedly vowed to continue investing in foreign equities. “That may not be a wise decision,” Herrera said of Garcia’s investment strategy. “Many analysts fear that while massive intervention on the part of the US, EU, and Asian governments have eased solvency concerns for the global financial system, earnings weakness will continue,” he said.”The fact that one of the fund managers itself has been the subject of a government rescue clearly suggests that the GSIS should proceed with caution, if at all.”

Herrera was referring to the $13.4 billion infusion by the Dutch Treasury in ING Groep NV, the parent of ING Investment Management. “An institution that cannot prudently manage its own investments or finances cannot be totally trusted to skillfully look after other people’s funds,” Herrera said. ING Groep lost $670 million in the quarter ending September 30. It blamed the loss on $2.68 billion in investment losses, asset write-downs, and toxic loans.

Given the uncertainly of global markets, Herrera said government workers whose pension funds are at stake deserve to know the true state of the GIP. “It is disheartening and alarming that the GSIS continues to try to mislead its members while stubbornly insisting that it will continue investing in highly volatile global equities,” he said.

https://ntucphl.org/- Lito Herrera, Trade Union Congress of the Philippines