A bold GSIS move

Man at the Market

Jesse E.L. Bacon II

11/21/2007

State-owned Government Service Insurance System (GSIS) is set to make history with its projected investment of $1 billion of its funds in various portfolios abroad under its Global Investment Program (GIP).

The GIP is being pursued, according to lawyer Winston Garcia, the GSIS president and general manager, to allow the system to maximize the earning potential of its investible funds and thus enable the public sector pension fund to cope with its current and future obligations to its burgeoning members and pensioners.

Garcia stressed that the GSIS has a continuing obligation to ensure that its assets will not only perpetually grow but will be sufficient to match the contingent and future liabilities of the fund to its members and pensioners.

“The GIP is one of the many ways of fulfilling this obligation,” Garcia further emphasized.

The move, which raised quizzical eyebrows from certain sectors, is endorsed by the Bangko Sentral ng Pilipinas (BSP). Those who are opposed to the move say the GSIS excess funds if invested locally could help finance various public sector infrastructure projects.

BSP’s Diwa Guinigundo, however, explained that the local economy’s absorptive capacity has so far reached its limit, given the billions of dollars infused by the overseas Filipino workers (OFWs). Allowing the GSIS excess funds to stay in the economy will just exacerbate the country’s problem with inflation, the BSP deputy governor was quoted during a radio interview as saying.

The excess GSIS funds could have been used to build government infrastructure projects and finance other economic activities if only its absorptive capacity had expanded. But since there is no place by which this excess funds could be utilized at the moment, it would just be right that they be placed elsewhere to earn more for the state-owned pension fund.

Admittedly, the country is right now awash with so much cash. Investing the excess GSIS funds in the domestic economy will just bloat the country’s current money supply since they can’t be used for credit requirements or fund various infrastructure projects of the government. This phenomenon is brought about by the excessive dollar remittances by the OFWs.

The GSIS had already awarded its GIP mandates to ING Investment Management and Credit Agricole Asset Management (Singapore) Ltd. as fund managers to the extent of $300 million each as initial investment under this program.

The state-owned pension fund has set a minimum annual return requirement of eight percent, net of fees, and a volatility ceiling of seven percent for the portfolio.

The GSIS has also named Citibank, N.A., and a major American financial service company based in New York, as the global custodian of its $1-billion GIP fund. As global custodian, Citibank is charged with the safekeeping of its GIP assets and will also be responsible for the income collection, transactions settlement, fund valuation and accounting, compliance monitoring, transition management and securities lending related to the program.

“Citibank is the right company for the job. Its credentials speak for themselves,” Garcia said.

Citigroup as its chosen global custodian holds the distinction as one of the world’s leading financial service entity given its extensive proprietary network spanning 47 of the 86 markets covered by its global custody infrastructure. This means that GSIS assets will be kept within Citi’s own branches or subsidiaries.

“Citibank will minimize sub-custodian risk and will provide the GSIS with local market knowledge resulting in timely communication of market changes, better control over operations and quality client service and fast inquiry or problem resolution,” Garcia added. (jelbacon@yahoo.com for reactions)

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