Retired investment banker Leo Alejandrino writing in his blog:
Congress and the Executive branch are excited over their latest brainchild: The House is about to approve in record time the creation of the Maharlika Investment Fund, a Government vehicle that will invest in local and foreign private and public enterprises. The MF will be chaired by the President or his designate, with the head of the GSIS as Vice-Chair and other Government officials as Directors.The stated mission of the MIF is "to reinvigorate job creation and reduce poverty".
The Maharlika Fund (MIF) is said to parallel sovereign wealth funds in among others Saudi Arabia, Norway, China and Singapore. The MIF will start with a P250 billion kitty to which the Budget will contribute P25 billion annually, GSIS P100 billion, SSS P50 billion, DBP P50 billion; with PAGCOR (10% of its gross gaming revenues) and BSP (50% of its dividends) to follow. The investments by the GFIs in the MIF shall be guaranteed by the National Government.T
The Maharlika Fund is, with all due respects, a really bad idea. Here is why:
1.The MIF will not help the economy; in fact it will do the opposite - The MIF will be allowed to invest in foreign entities as part of its mandate. In effect the MIF will divert scarce Philippines savings to buy foreign stocks and bonds. To tell you how crazy that is President Marcos is flying around the world courting foreign investors to invest in our country yet here we are mandating our Treasury and GFIs to invest offshore.
This is a valid point which I already made in my previous blog post. Its contradictory that we are pleading for foreign direct investment but we don't invest in ourselves. Charity, as they say, begins at home.
2. The MIF has no added value - The MIF will be duplicating functions already being done by our GFIs without any assurance it will do a better job. The MIF is a cross between what Wall Street calls a Special Purpose Acquisition Company (SPAC), a publicly listed vehicle with no plans and no purpose other than a promise of riches; and a hedge fund with an unconstrained mandate. Most of the SPACS have collapsed including one involving Donald Trump. Over 80% of hedge funds under perform the market. Why will the MIF do better?
I'm not an expert on the SSS and GSIS charters but given the state of the financial markets since the pandemic, the risk is higher. I don't think we have the local talent pool who are experienced fund managers on the level of the large investment banks and funds. How can a return be guaranteed?
3. The Philippines has no savings to reinvest - Countries with sovereign wealth funds like Saudi Arabia, Qatar, Kuwait and Norway have petro-dollars that need to be re-cycled. The Philippines has no such surpluses. In fact we will be borrowing to finance the Government’s contribution to the MIF at a time of limited fiscal space. The annual contribution of the Treasury of P25 billion could be better spent on education and social amelioration.
Exactly the point. The Singapore model is based on the income generated by government-owned or controlled corporations. About the most consistent GOCC in the country is PAGCOR. It would've been different if the government didn't give oligarchs control of key industries such as utilities, telcos, mining to name a few. This is why I have been saying that a long-term development strategy is in place since this has been our problem with being under the control of Americans up to 1974. It was only when Marcos didn't renew the parity rights agreement that he embarked on his 11 major industrial projects.
Marcos Jr. should do the same.
4. Our Government has a dismal record in managing money - Our economic landscape is littered with the carcasses of Government funds that promised everything and delivered nothing. In 1971 Ferdinand Marcos legislated the infamous Coconut Investment Fund by imposing a P0.55 levy for every 100 kg of copra. The money was to support coconut farmers but ended up allegedly financing the takeover of San Miguel Corp. by one of the cronies. The ownership of the Cocofund is today still being disputed in court. The Coconut Fund also financed the United Coconut Planters Bank. UCPB got into trouble and had to be rescued by a merger with LandBank.The National Development Co. (NDC) was another funding vehicle established by the first Marcos Government to support investments. The NDC is now a skeleton of itself with a sprinkling of real estate holdings. The NDC is so moribund its website does not even list a General Manager.
The exception to be made is Danding Cojuangco's management of the coco levy funds. There was nothing wrong with his acquisition of San Miguel and UCPB. UCPB only had to be absorbed by Landbank after it has been stripped dry by government appointees to its board. Perhaps Alejandrino should expound on how the San Miguel sequestered shares were sold to private parties without the benefit of the writ of sequestration being lifted.
Then there was the Government managed Road Fund, a levy on private motor vehicles to support our infrastructure. This tax is the third largest source of Government revenue after the BIR and Customs. In 2009 Sen. Miriam Santiago exposed P61 billion in anomalies in the Road Fund. God only knows what has become of that disaster since.Philhealth was established to finance universal care in the Philippines. In 2020 Philhealth was discovered to be some P200 billion in the hole from massive corruption. None of its officials were jailed. The Maharlika Fund will I believe suffer the same fate as the others. Only this time the victims will be the SSS and GSIS pensioners, the Landbank, the DBP and the Filipino taxpayer. The authors of the proposed MIF bill claim there will layers upon layers of Government oversight but the same was said of the other funds that collapsed. With the President as its Chair who will dare challenge the governance of the MF? There will be independent directors in the MIF and an external auditor to protect the public interest but we all know how that works.
The point about the Road Board is valid. The funds collected were not solely used to improve the road network. Dodie Puno had fun being chair of the Road Board.
5. The MIF is fraught with risks - Congressional authors of the MIF bill claim the GFIs will have "zero risk" because their investment will be guaranteed by the National Government. What they do not tell us is any claim on the Government guarantee will ultimately have to be paid by taxpayers.
There is no investment that is zero-risk. There is always risk involved. Hedging the risk also carries risk. This is exactly what happened in 2008. It came to the point that nobody actually knew anymore who owed who what given the extent of hedging. If you look it closely, the financial markets are really just like one big Ponzi scheme.
6. The Landbank, the DBP and the BSP have no business investing in the MIF - The Land Bank is supposed to support the agricultural sector, the DBP the commercial and industrial sector. How does their investment in the MIF help further their mission?The BSP is an independent body established to protect our financial system. Why should 50% of their dividends be plowed into a fund over which they have no say? When asked if the BSP would contribute to the MIF, Gov. Felipe Medalla said he will do so only under duress or words to that effect. He was concerned about possible anomalies in the Fund: "The experience of 1MDB in Malaysia is the biggest risk". Finally, a man who speaks to the truth.
This is another dubious provision since the charters of the Landbank, DBP and BSP are specific. You can't just take out dollars from the BSP to invest in the Maharlika Fund.
7. The MIF will not attract foreign money managers as its sponsors claim - Foreign managers will not invest in a vehicle that simply replicates what they do especially given our country's record in that space. The truth is the Maharlika Fund is likely to be yet another political slush fund to support the new cronies just like the Coconut Fund was used to support the old cronies. But this time it is the pensioners and the ordinary taxpayer who will take the hit. The MIF will fly under the scrutiny of regulators, the media and the public. Under the proposed draft bill that I saw the control mechanisms on GFIs and GOCCs will not apply to the MIF. Employees of the Fund will not be subject to Government Salary Standardization limits so its officers and directors can be paid enormous benefits. The MIF will be excluded from Government Procurement protocols.Filipino taxpayers and pensioners will end up footing the bill, writing a P250 billion check to an entity with no investment program, no track record and no mission other than motherhood statements like "to reinvigorate job creation and reduce poverty". No one has explained how making investments abroad through the MIF will do that.The MIF looks to me like a fattened cow waiting to be milked. We have seen it elsewhere: 1MDB, the Malaysian Sovereign Wealth Fund, was scammed of four billion dollars by the then Prime Minister and his wife aided by a prominent U.S. investment bank.If the bill becomes law the Maharlika Fund could well become the mother of all heists.
For the life of me, whoever comes up with these cockamamie ideas to feed to the Marcos' and Romualdez's are either out to sabotage them or they just really think that they can get away with murder again. We have a budget deficit and a trade deficit. It's basic accounting. This simply means there is no excess funds to invest. This sovereign wealth fund will also have an impact on our image abroad. We're going to be the laughingstock of the financial community.
I'm sure Singaporeans are already laughing at the idea. We can't even get our act together in urban planning and now, we're looking at establishing a sovereign wealth fund?
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