CalPERS adviser erred in report on RP

Wilshire Associates, the consultants hired by the US-based California Public Employees Retirement System (CalPERS), made even more errors in its annual report that recommended the removal of the Philippines from the fund’s investment portfolio.

When confronted with the errors, Wilshire raised concern about the impending counter-measures that the Philippines would be subjected to for failing to comply with the demands of the Financial Action Task Force (FATF).

This was the conclusion made by the Philippine delegate that went to the US last week to meet with CalPERS officials and Wilshire representatives to discuss the country’s removal from the CalPERS list of "permissible countries."

Finance Secretary Jose Isidro Camacho flew to the US last night to attend the CalPERS board meeting today where he would make presentations before the fund’s board of directors countering the Wilshire report.

According to Camacho, Wilshire has already latched on to the FATF sanctions and he said this issue would continue to figure in investment decisions unless the country legislates the necessary reforms.

"It’s a reputational risk," Camacho said. "It is not even a matter of the actual dollars, per se. It’s a matter of sending a signal to the rest of the investment community."

Camacho said the sheer size and extent of CalPERS’ investment portfolio makes the issue critical one since other investors look to the fund’s investment decisions for cues on how to move in the market.

"It’s important that we make our case," he said.

According to Corazon Guidote, head of the Investment Relations Office (IRO) of the Bangko Sentral ng Pilipinas (BSP), CalPERS itself was sympathetic to the Philippines.

"There were just too many errors in the Wilshire report," Guidote said, emerging from the meeting with CalPERS and Wilshire. "Wilshire used third party report but they did not validate the information that they were getting."

Guidote said the meeting was "touch and go". She said Wilshire was "defensive" because there were errors that were indefensible.

"Their evaluation of transaction costs in stock trade was wrong. They said we were not requiring audited statements in our listing rules," she said. "That is just plain and patently wrong."

Guidote said issues about labor concerns were also raised. "They gave us a very low score. When we reviewed it, we determined that we should have gotten a higher score," she said. "Their report was just peppered with mistakes."

Wilshire Associates had recommended that CalPERS drop the Philippines from the list of "permissible countries" along with China, Egypt, Indonesia, Pakistan, Russia and Venezuela.

Wilshire’s evaluation of the Philippines raised eyebrows among finance officials still smarting from Wilshire’s report last year which caused the country’s removal from Calper’s folder.

Calpers first removed the Philippines from its folder last year when Wilshire was quoted for reporting that the country was still using manual settlement, chalks and blackboard in its stock trading.

In the controversy and embarrassment that ensued after this erroneous report, Calpers was forced to put the Philippines back in its list of permissible list but market sources said the decision made little difference.

"No money actually came back," said one trader. "They said they would return but they never did."

CalPERS has a $1-billion investment portfolio for emerging markets that include Southeast Asia, Latin America and Eastern Europe. After its evaluation, it announced that it was pulling out its investments in the Philippines, Indonesia, Malaysia and Thailand.

CalPERS had decided to shift its investments to Poland and Hungary.

In the Philippines, CalPERS had investments of up to $15.7 million, more than twice the total daily trade at the PSE. It is the largest holder of Philippine bonds and its pull-out has had a dampening effect on the market.

CalPERS is the US’ largest pension fund with assets over $150 billion. It adopted a policy of listing down "permissible countries" early this year although officials said that it did not actually move to immediately pull out its investments in the Philippines.