How much did Winston G lose?

It is amusing to watch Cebuano Boy Herrera needle fellow Cebuano Winston Garcia on Winnie da Pooh’s pooh performance as funds manager for GSIS pensioners. The former Senator pooh poohed a recent press release claiming GSIS’s assets grew nine percent to P480 billion in ’08.

Senator Boy H issued two successive press releases in his capacity as TUCP secretary general pointing out in one that “GSIS stake in foreign banks nearly wiped out” and in the other, “GSIS lost chance to get extra P14 billion from Meralco stake” by prematurely selling Meralco shares to San Miguel and not getting paid spot cash.

On the first claim, I think Senator Boy is being too harsh on Winnie da Pooh. Everyone knows how badly the world equities market is doing. Even Warren Buffett, the Oracle of Omaha, suffered through the worst year on record last year. So what if the equity investments of GSIS in large American and European banks have been nearly wiped out as a result of the global financial meltdown? Winnie da Pooh is with good company.

My problem with Winnie da Pooh is that he is not being truthful about his losses. He issued a press release claiming he trumped all challenges in 2008, including the global financial crisis and “we managed to grow and post record-breaking results.” The question is, did he really? If so, how did he do it? We may have the Pinoy version of Warren Buffett at GSIS and not even aware of it or appreciate it. He must tell us all.

Obviously, Boy Herrera says poohey to the claim that Winnie da Pooh is some financial whiz kid. On the contrary, Sen. Herrera warned that the GSIS risks totally losing some of its investments in large US lenders, particularly Citigroup and Bank of America. He is also worried about GSIS’s common stocks in Bank of America Corp., Citigroup Inc., Fifth Third Bancorp, US Bancorp, Barclays PLC, Lloyds TSB Group PLC, Royal Bank of Scotland PLC, and HSBC Holdings PLC.

The former Senator is concerned that should any of these banks be nationalized by the US government, all common shareholders, including the GSIS, would be wiped out for good. Of course, should this happen, Winnie da Pooh is still in very good company. The sovereign wealth fund of Singapore just agreed to have its preferred shares in Citibank converted to common and so did Walid bin Talal, that flamboyant Saudi prince who used to be the largest shareholder of Citibank.

Citigroup’s stock plunged last week to a new low of below a dollar versus $27.35 a year ago; Bank of America’s to $2.53 versus $43.46 a year ago; Fifth Third’s to $1.01 versus $25.47 a year ago; and US Bancorp’s to $9.71 versus $42.23 a year ago. Just by tracking the share prices of the foreign stocks in the GSIS portfolio, one realizes how bad GSIS must have suffered last year.

“Actually, it is not just the GSIS’s bank stocks which are being hammered. The pension fund’s stocks in large non-bank US firms such as Pfizer Inc., Kraft Foods Inc., Newell Rubbermaid Inc., Sara Lee Corp. and FootLocker Inc., among others, have also lost considerable value,” Herrera said. Pfizer’s stock dipped last week to a new low of $12.28 versus $22.92 a year ago; Kraft’s to $22.45 versus $34.97 a year ago; Sara Lee’s to $7.57 versus $15.07 a year ago; Newell’s to $5.61 versus $24.16 a year ago; and FootLocker’s to $3.65 versus $18.19 a year ago.

“Based on our initial estimate, every P1 invested by the GSIS in foreign stocks is now worth only 30 to 40 centavos at best,” Herrera said. The GSIS previously reported P4.13-billion worth of investments in the stocks of 123 foreign firms, including 26 financial entities. The P4.13-billion accounts for 15 percent of the GSIS’s P26.54-billion Global Investment Program (GIP) Portfolio.

It does not help that in their latest press release, GSIS reported “for the first five months since the program was launched, the value of foreign investments grew five percent to P1.245 from its inception value.” But the market went deep South in the second half. What is the value of the investments now?

The second thing Senator Boy is needling Winnie da Pooh about has to do with the sale of Meralco shares. “The Government Service Insurance System (GSIS) would have made almost P14 billion more had it not ‘too hastily’ sold its 27-percent stake in Manila Electric Co. (Meralco),” the former senator said.

The GSIS sold its 300,963,189 shares in Meralco at P83 each, payable over three years, to San Miguel Corp. (SMC) in October. The shares were actually sold at a nominal price of P90 each, for a total of P27 billion. However, since the GSIS would get paid over a three-year period, instead of instantly, analysts estimated the “real” selling price at only P83 per share, after factoring in the cost of money. The pension fund’s “real” selling price was 55 percent less, or P46 lower than the P129 historic high hit by Meralco’s stock on Friday.

Sen. Herrera blames politics for the investment woes of GSIS. “Sadly, this is what happens when state-run pension funds dabble in politics, and get distracted from dutifully performing their true mission — to make the safest investments that generate the highest returns for the hard-earned contributions of their members,” Herrera said.

“If we look at the past political entanglement of state-run pension funds, they usually get burned, or miss real opportunities to make money,” said Herrera, former chairman of the Senate labor, employment and human resources development committee. He cited the previous “politically-induced” investments of the GSIS and SSS in the erstwhile Equitable PCI Bank Inc. and Belle Corporation during the Erap regime.

What can I say? All that is par for the course! What I can’t understand is why Winnie da Pooh isn’t more transparent? So what if he lost money in his first foray into the international equity markets? Almost everyone similarly situated suffered significant losses too. What people should remember is that he dared do what past fund managers of GSIS should have done. Our local equities market is too small and the concept of investing abroad is sound.

But since GSIS is a public fund, maximum transparency is required. It is in this area where Winnie da Pooh failed. It isn’t too late to correct that.–Boo Chanco, Philippine Star