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The
announced plan of the Social Security System (SSS) to
follow the lead of the Government Service Insurance
System (GSIS) to undertake overseas investments smacks
of lack of investment opportunities here.
True,
the plan could bring in the needed diversification for
the pension funds, both of which have to earn enough to
fund the future pensions of their members in their
twilight years.
But
there are actually other modes of investment that could
provide the needed income stream for both.
Both the
GSIS and SSS, which are collectively toying with the
idea of investing a total of P70 billion offshore, could
actually serve as a “hedge fund” of sorts in funding the
shortfall in the capital of local banks as a result of
the Basel II capital adequacy ratio requirements.
The
strict accounting standards now in place which disallow
goodwill in the books and provide for market-to-market
standards in the loans and investments of the banks
effectively allow the two pension funds to invest in the
required increase in capital of the banking system.
Commercial banks have, of late, been coming up with the
so-called Tier II capital as well as the hybrid Tier I
capital, both of which are intended to boost the capital
of the local banks to conform with the new accounting
standards that specifically mandates a clear
appreciation of risks.
It is in
this area that the SSS and GSIS can both pool their
investible funds to afford them the higher rate of
return that they both need to secure a bright future for
their pensioners.
When the
two pension giants come up with that kind of hedge fund
for the capital buildup of the banking system, then they
can breast-thump and say “charity begins at home” while
securing a better rate of return on their investments.
The
return on their investments in the capital buildup would
be much higher than what they can now extract from the
issuances of the government, such as treasury bills and
notes and a scattering of bonds, especially in the
continuing regime of low interest rates.
The SSS
and GSIS would then come up smelling like roses should
they pursue a “localized” version of their planned
overseas investment binge. After all, they would be
helping the banking system.
The two
pension funds may be blissfully unaware that there is a
better rate of return that they can get, complete with
exit strategies, should they pursue investing in the
“capital call” of the banks. The two can even lay down
the exit strategy they want to match their cash needs in
the future.
We
understand that some commercial banks that are
undertaking Tier II and the hybrid Tier I are open to
having preferred shares that are convertible into common
shares. This mode allows the SSS and GSIS to have the
option of converting their preferred shares in the
capital of the banks to common shares should the
convertibility feature be profitable. The investment of
the two pension funds would also boost confidence in the
banking system.
Another
investment mode available to the two pension giants is
that of putting up the seed fund for a projected
real-estate investment trust (REIT). This could lead to
a further explosive growth in the real-estate sector.
Now in the midst of a construction boom due to the surge
in BPO (business-process outsourcing) investments, the
country’s growth could even hit 10 percent as the
construction industry has a way of trickling down to the
rural areas.
Studies
point to the emergence of the Philippines as a better
alternative to India, and this could fund the growth in
the construction sector. Another possibility for the
construction boom that could be towed by the REIT
investments of the SSS and GSIS is that of a new
business model: the retirement havens.
Retirement destinations in the Philippines for the aging
populace of Japan, the United States, Canada and Korea
are in the drawing boards of several companies.
Poster-perfect places in Tagaytay City, Baguio City,
Surigao, Cebu and even Hundred Islands in Pangasinan can
benefit from investments in the construction and
development of retirement parks for the developed
world’s elderly. The benefits from the construction boom
would be immense from the point of view of the locals.
So the
GSIS and SSS are not lacking in investment outlets. All
they have to do is to expand their horizon within the
vicinity. Or if they so desire, they may ask for
presentations from their would-be financial advisers to
come up with a detailed study of the Philippine
investment situation. In this way, they can still pursue
their planned investments offshore but with a caveat:
for the financial advisor to focus their investments in
the Philippines.
We are
pretty sure that the capital buildup of the banking
system, wherein the local banks borrow money to boost
their capital as well as the real- estate industry,
provide better options for the country’s pension funds.
The SSS
and GSIS missed out on the opportunities afforded by the
fire sale of nonperforming loans of the banking system;
it is hoped that they do not miss out on the others.
E-mail: hugagni@yahoo.com |
