Philippine Pension Fund Plans Property Sale to Boost Returns

Aug 28, 2014 9:55 pm ET

Aug. 29 (Bloomberg) -- The Philippines’ second-largest state-owned pension fund plans to sell about 10 billion pesos ($229 million) of properties, more than half the value of its land portfolio, to help boost returns.

The Social Security System, which has 408 billion pesos of investible assets, may sell three prime real estate in metropolitan Manila, President Emilio de Quiros said.

“We’re very serious in terms of looking at and trying to see whether we can unload them,” de Quiros said in an Aug. 26 interview. The asset sale will be a record for the fund, he said.

The pension is considering selling buildings in the financial centers in Makati and Quezon cities as well as a plot of land in Fort Bonifacio, a former army base converted into a business district. These are part of 18 billion pesos of real estate assets, or about 4.6 percent of the pension fund’s investment portfolio, he said.

Land prices in the Philippine capital region have risen about 15 percent over the last three years on increasing demand for office space from outsourcing firms and for residences from Filipino expatriates, according to the Manila unit of commercial property broker CBRE Group Inc.

The country’s $272 billion economy expanded 6.4 percent in three months through June, the government reported on Aug. 28, more than the median estimate of 22 economists in a Bloomberg survey. In July, the central bank raised its key rate to 3.75 percent from a record low 3.5 percent.

Seeking Diversification

The Social Security System collects and manages contributions from more than 30 million workers in the private sector. Its fund is projected to last until 2042, extended from 2039 following an increase in the contribution rate in January after years of opposition from workers and employers groups.

Its lifespan of about 30 years is still a long way compared to the “ideal” 70 years, and contribution increases must be done “in small steps,” de Quiros said.

The pension fund may consider investing a part of its portfolio overseas, a program the Government Service Insurance System, the nation’s biggest state-run pension, scrapped in 2011 as more higher-yielding investments were available locally. GSIS started a $600 million global investment program in 2008.

Growing Fund

“We’re growing the fund and we need to diversify,” de Quiros said. “It bears watching. Eventually, we’ll probably take a few exposures here and there just to test the waters.”

The pension fund may increase its 100 billion pesos in equity investments by a third as it boosts holdings of high- yielding banking, telecommunications, power and consumer stocks.

“You can call it an opportunistic type of approach,” de Quiros said.

The Social Security System, which accounts for 4 percent to 5 percent of trades on the Philippine stock market, is allowed to invest 30 percent of its investible assets in equities.

De Quiros said that about 22 percent of the fund’s assets are in equities traded on the local exchange. The state-owned pension’s holdings include Philippine Long Distance Telephone Co., Union Bank of the Philippines, Security Bank Corp., and Energy Development Corp.