CalPERS defers by another 30 days pullout of investments from RP

The largest pension fund in the US has delayed its decision to divest all its Philippine holdings, giving the government 30 days to present reforms that would make the country a more attractive market for its investments.

The California Public Employees Retirement System (CalPERS) board of directors decided to defer the divestment until a further review of the country’s status in its list of permissible emerging markets.

Reports indicate that CalPERS holds about $67-million worth of Philippine stocks but some estimates peg the actual volume at only $25 million.

If the Philippines is dropped off the list with finality, however, the country would have to wait until 2005 to be considered for reinstatement and only if CalPERS agrees to proposals to change its benchmarking of emerging markets.

In the evaluation of its external consultant Wilshire & Associates, the Philippines was given a score of 1.87 points, up from 1.46 points last year. This upgrade, however, was still not enough for the cut-off score of two points

Along with India and Thailand, the Philippines was dropped from CalPERS’ list of investment-grade emerging markets after all three countries failed the grading system used by Wilshire.

The grading system was intended to measure stock market efficiency, corporate governance practices, political stability and respect for human rights.

CalPERS’ emerging markets portfolio was estimated to have at least $2.6 billion in assets but the pension fund admitted that it missed out on about $83 million in profits from emerging markets because its standards forced it to drop surging countries like Thailand and India.

CalPERS is being persuaded by the Philippine government to lower its cut-off for permissible emerging market, a proposal originated by Wilshire itself.

At present, the investment report said CalPERS’ permissible equity market list includes few Asian countries. Should the benchmark change occur, it would leave CalPERS with a large underweight in Asia and a large overweight in South America, Africa, and the Middle East.

"If the Philippines were not included in CalPERS’ permissible list in 2005, then there would be no investment in emerging Asia under the proposed index construction, unless the CalPERS 2005 permissible list includes more Asian countries than the 2004 list," the report said.

Argentina, Turkey and Peru also fell below CalPERS ‘ report card threshold, but CalPERS said these countries would remain on the fund’s list of emerging markets during a one-year probationary period.

Malaysia, meanwhile, was added to the fund’s list of permissible emerging markets after receiving a higher score on the Calpers’ check list this year than it had a year earlier.

The Investor Relations Office (IRO) of the Bangko Sentral ng Pilipinas (BSP) is leading efforts to convince CalPERS within 30 days that it should be included in the list, citing recent efforts to cut stock transaction taxes, prevent the abuse of child labor and bolster the independence of the country’s judiciary.

Calpers’ committee members said that the Philippines had made progress but needed to do more and opted to offer a one-month grace period to study recent reforms.

Although it was unclear how much CalPERS actually invested in the Philippines, its actions are closely watched supposedly because of its power over Wall Street and around the world as an "activist investor."

CalPERS was regarded as primarily responsible for pressuring pharmaceutical companies to lower the cost of AIDS drugs and has filed a suit against the New York Stock Exchange over its specialist trading system.