GSIS diversifies investment portfolio with planned $200-M offshore placements

Struggling to relieve its overexposure in the National Government, the Government Service Insurance System (GSIS) has decided to diversify into the international market, initially earmarking at least $200 million for possible offshore investments.

If approved and implemented as planned this year, it would mark GSIS’ maiden venture into offshore investments after years of locking its funds in low-yielding domestic instruments, mostly government securities.

GSIS said its investment portfolio is very heavily invested in the domestic market, specifically in government securities and various other government debt papers.

GSIS executive vice president Reynaldo Palmieri said the board is hard-pressed to diversify its portfolio and investing for the first time in foreign instruments.

Palmieri said the pension fund’s total assets currently stand at an estimated P311 billion, excluding receivables from the National Government which are considered off-balance sheet items.

Palmieri said the GSIS board has already decided to put at least $200 million in a foreign fund manager that would, in turn, invest the fund on selected investment instruments.

"We are in the process of drawing up the investment parameters and principles that would guide our investment decisions when we embark on this," Palmieri said, adding that GSIS is now looking for a financial adviser to help the board select the fund manager.

"We want to diversify in terms of instruments and geographical spread," Palmieri explained. "Our charter allows us to invest about 10 percent of our investment portfolio in foreign-denominated instruments, we just haven’t done it before."

Palmieri said the GSIS is being constrained by the narrow yields in the domestic market, thus putting its funds in offshore investments would help the fund maximize its resources.

"The problem is that we are overexposed in the National Government and there isn’t much activity in the stock market," Palmieri said. "One way to beef up the fund without raising premium contributions is to make investments that would generate high returns."

Palmieri said the GSIS is anticipating negative reactions, particularly from legislators, but the fund is working with the Department of Finance and the Bangko Sentral ng Pilipinas (BSP) to make the process as transparent and prudent as possible.

Palmieri said the proposal to invest in foreign-denominated instruments has already been studied way back but was never seriously pursued.

Palmieri said the board will draw the investment parameters that would include investment principles and standards based on the provisions of its charter.

"For example, we are not allowed to invest in speculative stocks so we won’t do that," he said. "We will pick the suitable investments based on recommendations of the adviser and then based on that, we will select the fund manager that can best implement our objectives."

For 2005, Palmieri said the GSIS is projecting its gross revenues to reach P75 billion. Net of claims by members, the net revenues is expected to reach P38 billion of which around P28 billion would come from investments.

Net revenues from both premium payments and investments were recorded at P36.5 billion in 2004 and P35.6 billion in 2003.