PHILIPPINE NEWS SERVICE — EVEN in the face of the worst financial meltdown in the history of the United States, the global investment program of the Government Service Insurance System, which started April 2008, bucked all odds and posted an impressive growth of 5 percent (P1.250B) in the total value of investments as of September 30.
The current crisis in the U.S. economy started when 158-year old U.S. investment bank Lehman Brothers Holdings, Inc. surprisingly filed for Chapter 11 bankruptcy protection on September 15, the largest bankruptcy filing in U.S. history, with Lehman Holdings over $600 billion in assets.
“The proof of the pudding is in the eating. This is a significant achievement, especially since we’re just barely five months into the program,” said GSIS president and general manager Winston F. Garcia.
“This is why I always tell our critics not to fall prey to knee-jerk reactions. We have a three-year window for the GIP. Based on the early results, I can assure our members that we are headed in the right direction.”
As in with its other well-meaning policies, the GSIS also preached patience among its members on the benefits of investing overseas.
“The absorptive capacity of the local market is just too limited for the investible funds of the GSIS, thus we have to take advantage of opportunities overseas,” Garcia said.
“At the same time, when things go bad, we should not press the panic button immediately. We’re in for the long haul. Any educated judgment on the performance of the investment should be rendered at the end of the program, not a few months into it. That’s why it’s called long-term investments.”
Along with naming ING and Credit Agricole as the fund managers for the GIP, the GSIS had also assigned Citibank, N.A. as the global custodian of the funds.
Earlier, critics of the GSIS hit the pension fund’s selection of Citibank as the global custodian just due to the fact that it is based in New York, is a major Wall Street player and that there are speculations that it “stands on thin ice” just like its contemporaries Lehman and American International Group.
“I don’t know why some people have issues with this (selection of Citibank), They’re just the custodian,” he said. “May I also reiterate that we exactly have zero exposure in Lehman and AIG.”
Garcia pointed out that the GSIS’ investments under the GIP are fully diversified, not only geographically but also in terms of asset class, thus hedging it from the effects of the current U.S. market collapse.
The GSIS also set a requirement that only fund managers with at least $100 billion in assets under management will qualify.
Aside from the flexibility to determine their investment strategy, the fund managers were required to comply with the absolute return requirement of an eight percent floor limit in annual return on investments (net of fees) and a ceiling of seven percent on the portfolio volatility.
“For me, if there’s one thing that has taught us a lesson and reinforced our view on investment, it’s the recent economic development that’s happening in the world today. Don’t put all your eggs in one basket in order to properly manage your risks. You have to diversify your investments,” he said. “This turbulence in the world economy has reinforced our stand and philosophy that it’s really better if we have a diversified portfolio.”