Philippine social security fund eyes infrastructure, Reits
After eight months as president of the Philippines’ Social Security System (SSS), Emilio de Quiros, has good news to report. The institution’s assets under management stand at Ps302 billion ($7 billion), up over 10% from $6.3 billion when he was appointed by the government in August.
He cannot take all the credit: the domestic stock and bond markets have contributed their share, as has peso appreciation against the dollar. But he does have significant experience of investment management; his previous role was as head of Manila-based BPI Asset Management for four-and-a-half years.
The fund has close to a quarter of its AUM (around Ps70 billion) in domestic equities, a similar amount spread across salary loans (Ps44 billion) and housing and corporate loans (Ps24 billion). The remainder – more than half the total portfolio – is in government securities, with maturities as far out as 25 years and largely held to maturity.
It has always invested in stocks since inception in 1957, but has significantly boosted its exposure in the past five years and is not far from its limit of 30% of the overall portfolio.
A large amount of the SSS’s equity holdings are in big blocks of shares that it tends to keep intact and not trade; only Ps20 billion of the Ps70 billion are traded. It trades Ps4 billion to Ps5 billion in stocks daily, says De Quiros.
The domestic equity market is not very liquid and smaller than most in Asia, although the stock exchange and Fund Managers Association of the Philippines are making moves to try to remedy this.
The SSS owns a significant amount of mining stocks, such as 21% in Felix Mining; has significant interest in financials, including 20% in Union Bank and a board seat in Security Bank; and holds stakes in telecoms companies, including a board seat at PLDT.
De Quiros says the fund is “seriously considering” shifting sector allocations, although he would not divulge which industries it is looking at.
The SSS would also consider buying real estate investment trusts (Reits) once the implementing rules are in place and some products emerge.
“That’s an area we need to look at very seriously,” says De Quiros. No Reits have been launched onshore yet, although some real estate firms – such as Ayala Group – have plans to do so, he says, and mall operator SM Prime Holdings is probably also looking at issuing one.
There remain issues related to tax over the amount of investment – how much of the Reit should be held onto by the major shareholder after the sale.
The SSS might also invest in exchange-traded funds once there's a market for them, but no framework has been put in place yet for domestic or foreign ETFs.
The fund is also taking a serious look at investing in the government’s public-private partnership initiative. “We’re readying our funds,” he says. “Infrastructure is a good long-term opportunity offering good potential returns, and has been made a government priority.”
However, the SSS does not have any allocation to foreign assets at all and does not yet plan to make any. It is happy with the returns it has achieved thus far and doesn’t yet see a need to invest overseas; nor does De Quiros feel the fund is of sufficient size to be concerned about being too big for its home market and affecting asset prices.
In fact, it emerged in early April that another state entity, the $14.3 billion Government Service Insurance System (GSIS), is closing its overseas investment programme, taking the view it can get better returns by investing purely at home (see the upcoming June 2011 issue of AsianInvestor magazine for more details).