CalPERS stays in RP despite global economic downturn

THE biggest pension fund in the US said it has not pulled out its investments in the Philippines despite uncertainties in emerging markets after the fall of Lehman Brothers a year ago.

In an e-mail, the California Public Employees’ Retirement System (CalPERS)—which has about $901.4 billion in investments worldwide—said that as of June 20 this year, its placements in companies listed in the Philippine Stock Exchange (PSE) dipped almost 33 percent to around $36 million from $53.7 million the same period a year ago.

“The difference may be due to stock value declines and not necessarily to selling of shares by the six external managers who deploy CalPERS capital to emerging market countries,” the pension fund told The Manila Times.

But a year ago, it was not the case with foreign investors. After esteemed names like Lehman, Merrill Lynch and American International Group (AIG) fell on their knees or altogether bowed out from Wall Street, investors pushed the panic button and pulled back their money to halt the bleeding.

As funds fled on worries that the world is on the brink of a global recession, the PSE suffered its worst fall in a single day on October 27 when the composite index—the benchmark of share price movements of listed firms—plunged by 12.3 percent, or 239.66 points to 1,713.83, marking the biggest drop since the Asian financial crisis of 1997. Trading was halted for 15 minutes to prevent the PSEi from sliding further.

During the months that followed, foreigners continued to dump shares of local companies, more than half of the amount they were buying a year ago as risk aversion lingered. On November 27, 2008, net foreign selling amounted to P39.1 billion, a reversal from the net foreign buying of P62.97 billion exactly the year before.

As the financial markets stabilized this year, funds began to creep back to emerging markets. Data from the Bangko Sentral ng Pilipinas (BSP) showed that foreign investments in listed shares of local firms and in other peso-denominated financial assets recovered in the first half of this year but the June figures showed no sustainable trend as far as inflows are concerned.

Foreign portfolio investment (FPI) registered a net inflow of $199 million, turning around from the—$636 million in the same six-month period last year. About 75 percent of total inflows went into PSE-listed shares but this was 32 percent lower than the $3.4 billion of last year. At least half of the stock placements went to telecom and consumer goods companies.

The central bank said investors—mostly from the US, UK, Japan, Singapore and the Netherlands—continued to be affected by risk aversion with some domestic concerns including declines in Philippine exports and the country’s difficult fiscal position.

At end-August, the BSP said that “encouraging domestic macroeconomic fundamentals such as declining inflation, easing interest rates and robust remittances by overseas Filipinos” have enticed foreign fund managers to place their bets in local securities. FPI in the first eight months yielded a net inflow of $182 million, a reversal from the net outflow of $446 million in the same period last year.

Now that the financial system may be on the mend, foreign institutional investors like CalPERS are now positioning for economic recovery.

In an interview over the talk show Insight, Joe Dear, CalPERS’ chief investment officer, said, “After the events of 2008 an extraordinary reduction in values for equities, we looked at the long term return assumption and basically said we don’t see a significant reason to change. That is we didn’t reduce the expected returns significantly, some minor adjustments. That’s a very powerful statement about our belief in the future.”

In response to the financial meltdown that ensued after the collapse of two key US mortgage companies, CalPERS said it has developed five financial regulation principles aimed at restoring trust and confidence in the global capital markets.

The key elements of the principles are greater disclosure and transparency, true regulatory independence and an increased and effective shareowner voice in the capital markets. They also include earlier identification by regulators of issues that give rise to overall market risk that threaten global markets, and the preservation of institutional investors’ freedom to invest in the full range of investment opportunities.

Before investing, CalPERS managers will assess country and company prospects in terms of political stability and the development of democratic institutions and principles; transparency of information, including elements of a free press; harmful labor practices, including the use of child labor; corporate social responsibility; adequate market regulation and liquidity; commitment to free market policies and openness to foreign investors; reasonable trading, settlement proficiency and reasonable transaction costs; and appropriate disclosure on environmental, social, and corporate governance issues.

In 2004, CalPERs almost pulled out its $67-million investment in the Philippines as the country’s score of 1.87 points didn’t qualify Manila in the list of “permissible emerging markets,” which has a threshold of 2.0 points.

It later decided to retain the country in the list after the government was given a two-month grace period to justify its retention.

In 2006, CalPERS raised its rating of the Philippines, placing it above China, India, Indonesia, Malaysia and Thailand in terms of the countries in which it invests.–Likha C. Cuevas-Miel, Assistant Business Editor, Manila Times