Alfredo G. Rosario
Manila Times

When the Lehman Brothers and the American International Group (AIG) collapsed in the US, many people pestered GSIS (Government Service Insurance System) President and General Manager Winston Garcia with questions on whether the insurance firm had investments in either financial firm.

They assumed that with the GSIS having $1 billion in its Global Investment Program (GIP) and with the New York-based Citibank NA as its fund custodian, any GSIS funds invested in the two firms might have been affected by the US economic meltdown.

Garcia told them: “No, the GSIS has absolutely no investments in either Lehman or AIG.”

GSIS spokesperson Estrella Elamparo and GSIS Vice President Enriqueta Disuanco also answered “no.”

No one seemed to believe Garcia. A teachers group and another, headed by a politician, continued to ask the same question, unconvinced by the GSIS officials’ statement in the newspapers and on radio and television that the GSIS had no investments in the US banks.

The other day, Garcia revealed that the GSIS had invested $600 million in GIP funds offshore—not in the US but elsewhere—and made a P1.250-billion windfall in just five months. He said the investments—with the Europe-based ING and with Credit Agricole of Singapore—are not only safe and secure but have been silently making money for GSIS members.

The GSIS would never have earned that huge amount in so short a time from its investments in the local market.

“The absorptive capacity of the local market is just too limited for the investible funds of the GSIS, thus we have to take advantage of opportunities overseas,” said Garcia in a press statement. “At the same time, when things go bad, we should not press the panic button immediately . . . Any educated judgment on the performance of the investment should be rendered at the end of the program, not a few months into it.”

According to Garcia, the GSIS’ offshore investments are doing better than its local investments, a factor that encourages him to go ahead investing $400 million more under the GIP.

The GSIS chief said the P1.250-billion windfall, representing 5 percent of its invested fund, was only a starter. He looks forward to GSIS earning more, the being a long-term investment program, the shortest being three years.

What’s pleasantly surprising, he added, was that the GSIS realized its big earnings under adverse international market conditions.

Based on the GSIS experience, the GIP model has shown its soundness to be able to withstand the full impact of the American financial crisis. It is, therefore, worth pursuing.

Under the GIP, only fund managers with at least $100 billion in assets under management (AUM) can qualify. They were required to comply “with the absolute return requirement of an 8-percent floor limit in annual return on investment and a ceiling of 7 percent on the portfolio volatility.”

Flushed with his investment success, Garcia said the GSIS will improve the investment program by including provisions for “proper disclosure, especially on asset-backed or mortgaged-backed investments.”

Garcia clarified that Citibank, being a fund custodian, does not invest GIP funds. “It does not invest a single cent of the GSIS GIP but acts only as a bank,” said the GSIS chief.

Why does GSIS not just keep its money in the bank? Garcia explained that the GSIS pays more in benefits and claims to its members than what it receives as premium contributions. When more money flows out than comes in, he said, it’s just a matter of time before even the biggest stash of buffer funds runs dry.

At present, he said, the GSIS’ actuarial life—the number of years it can meet members’ claims and benefits—stands at 35 years. That’s 25 more years than those of other pension funds.

But if the GSIS is to increase its actuarial life beyond 35 years, it must tip the cash flow in its favor in that more money should come in to replenish what’s going out to pay members. The beauty of the GSIS investment model is that it has separate funds for investing and for meeting the needs of its members.

The GSIS GIP was started only in April, this year, but it has already shown great promise as a highly productive investment program.

agr0324@yahoo.com