Philippine Pension Fund to Hire External Managers for First Time

Feb 19, 2014 12:08 am ET

Feb. 19 (Bloomberg) -- The second-largest Philippine pension fund plans to hire outside money managers for the first time after its investments almost doubled in size since 2006 to $9 billion.

The Social Security System will initially allocate 3 billion pesos ($67.2 million) to three outside managers, Executive Vice President Edgar Solilapsi said. They will oversee a portion of the fund’s debt and equity holdings and be chosen based on guidelines that are still being drafted, he said.

“You don’t just diversify assets,” Solilapsi said in an interview in Manila yesterday. “You have to diversify the brains making the investments to manage the risk. We prefer experts to do it for us.”

The SSS collects and manages contributions from workers and employers in the private sector and had more than 30 million members as of June. The fund has benefited from a surge in Philippine assets during the past five years that boosted the benchmark stock index by more than 220 percent.

“Outsourcing the pension fund’s management of investments is a global best practice,” said Paul Joseph Garcia, the head of the institutional business at BPI Asset Management in Manila. “This lowers risk and will benefit the members of the pension fund.”

Pilot Test

The pension has about 400 billion pesos in its investment reserve fund, Solilapsi said. The SSS had 62 percent of holdings in government securities and equities as of June, according to its website. About 20 percent was in loans to members, 10 percent in bank deposits and 8 percent spread across corporate bonds and real estate.

The fund will initially hand over a small portion of its investment portfolio to “pilot test” external managers, Solilapsi said.

“You don’t want to give a big amount at the start, for that could cause them to choke,” he said. “This has to be done slowly.”

The Government Service Insurance System, the nation’s biggest pension fund, has eight external managers after hiring three in January to manage 2 billion pesos of equity investments. The pension fund for state employees has about 118 billion pesos invested in stocks.

--Editors: Michael Patterson, Ravil Shirodkar