MAKATI CITY Philippines — The Philippines’ state pension fund for private employees is already entertaining offers from international fund managers as it prepares for its eventual foray into the international market. Franklin Templeton Investments Asia Ltd. a Hong Kong-based institution is one of those actively wooing the Social Security System’s portfolio.
This was disclosed by Corazon dela Paz president of the Social Security System at the sidelines of the 6th Annual Pacific Regional Investment Conference at the Makati Shangri-La Hotel on Nov. 9.
Dela Paz briefed participants of the conference composed of fund managers retirement fund officials financial analysts trust bankers and government officials from Asia the Pacific and the Philippines on the health and performance of the pension fund. She said the pension fund is creating a risk management unit early next year to assess possible investment opportunities.
The system is still waiting for the go-signal of the Supreme Court to allow it to sell its 25.8% stake in Equitable PCI Bank to Henry Sy Sr.’s SM Group which owns Banco de Oro. The management of both banks announced a merger agreement last Nov. 6. Shareholders of both banks will have separate special meetings on Dec. 27 to decide on whether or not to approve the merger.
Even as the system’s vote on the issue hangs due to restrictions imposed by the Supreme Court in 2003 Dela Paz was confident that the SM Group had enough votes in Equitable PCI Bank equivalent to the required 67% majority to have the merger approved. “I don’t have to vote. I think they have enough [votes]. They can make [the merger] happen. I think they won’t enter into that if they don’t know what votes they hold.”
She said “personally and professionally ” she is in favor of the merger because it will create a stronger bank. If the merger is approved the Social Security System will receive 1.8 shares in the merged bank for every Equitable PCI Bank share.
On Nov. 14 Banco de Oro asked the Supreme Court to throw out the case stopping the SM Group from buying the state pension fund’s stake in Equitable PCI Bank. The case was filed by senators in 2003 because they claimed the sale was disadvantageous for Social Security System members as the sale price was tagged at only 43.50 pesos [$0.87] a share. Trading on Equitable PCI Bank shares at the Philippine Stock Exchange closed at P79.50 [$1.59] apiece on Nov. 16.
Meanwhile Dela Paz said an RMU would allow the pension fund to thoroughly study investment opportunities and offers. “[Having an RMU] would minimize the risk to us and we can optimize [our investments]. There’s also a chance for example that we can go into the foreign market because we’re allowed to invest 7.5% [of our portfolio]. We would like to spread the risk [of investing] so your pension can increase.”
With its present stake in Equitable PCI Bank however she said the Social Security System portfolio has already “breached” the 30% equity investments allowed by its charter. In her speech Dela Paz said the investment portfolio of SSS amounted to 200.5 billion pesos [$4.01 billion] as of June this year. Of this of which 68.5 billion pesos [$1.37 billion] or 34% is invested in equities; 48.5 billion pesos [$970 million] in government securities; 32.6 billion pesos [$652 million] in member loans; 29.9 billion pesos [$598 million] in housing loans; 15.3 billion pesos [$306 million] in properties; and 5.6 billion pesos [$112 million] in development loans.
Aside from Equitable PCI Bank the pension fund currently holds stakes in PLDT San Miguel Corp. Philex Mining Corp. Asiatrust Bank Security Bank Corp. and Meralco. “If the Supreme Court says we’re free to transact [and sell the Social Security System’s stake in Equitable PCI Bank] then we have to honor our commitment to give up the shares [to the SM Group] in the tender offer [43.50 pesos/$0.87 a share] and collect our money. Then we turn around and invest elsewhere. By doing this we will in effect be freeing the SSS to go to the stock market in a bigger way because right now we’re already exceeding what we’re allowed to do in terms of equities ” Dela Paz told reporters after her speech.
She said the Social Security System is “offloading” some of the shares it is allowed to trade “but not in the magnitude that we would like to see.” But she said the proceeds from the possible sale of its Equitable PCI Bank shares is “equivalent” to the 7.5% portion of its funds that is allowed for investment in the foreign market.
She said the system is “looking seriously at tapping outside parties to manage part of our funds ” and that “this is why Bill Thompson regularly visits me and others [are] offering their services.” The pension fund has already started screening the possible investment advisers. “We also got an offer from a group who’s interested in managing part of our funds and helping train our people ” although she declined to identify the fund manager.
Thompson senior adviser to the Hong Kong-based Franklin Templeton spoke at the investment conference on Nov. 8 and briefed participants on the outlook of non-US equity markets including the Philippines.
While he declined to say that he was personally courting the system’s funds Thompson told the Journal “I’m sure there are people in our group talking to them [Social Security System] … It’s all informal though.” He said the fund manager is also waiting for the Supreme Court decision on SSS’ portfolio investments particularly on the sale of its stake in Equitable PCI Bank.
Dela Paz said the pension fund is particularly keen on the overseas market as it is “very liquid” and considering that the yields on government securities are “low.”
She said the system now regularly sends staff to attend international conferences to “understand and familiarize themselves on what’s really happening outside and understand the market. We want to understand the risks of investing in the international market.”MBJ