The $10-billion Social Security System of the Philippines (SSS) is maintaining its plans to increase its overseas investments, despite the imminent exit of the pension fund’s chief executive and president and the new economic headwinds surrounding a potential US recession.

That's according to SSS chief investment officer Rizaldy Capulong, who told AsianInvestor last week that the pension fund is looking at global bonds and equities to improve its foreign investment allocation.

“We are looking into foreign-pooled funds as well as foreign currency-denominated listed securities that are at least investment grade-rated for bonds or issued by companies with a three-year profitability and dividend-[paying track] record for equities,” he said.

In late February, SSS chief executive officer Emmanuel F. Dooc said the fund aimed to double its overseas allocation from 7% to 15%. He also said a portion of these new allocations might be outsourced to fund managers and advisers.

But Dooc’s tenure automatically ended when the pension fund’s charter was amended and he is widely reported to have resigned from his post in early March.

It remains unclear who takes over next from Dooc, who told AsianInvestor in October 2018 that he hoped for less political interference at the social security institution. This followed a push for external investment mandates and a desire to improve SSS's in-house investment capabilities in September 2018. It is also unclear whether the outsourcing plans outlined by Dooc have changed. 

Rizaldy Capulong

He also didn't provide any details about which foreign markets SSS will seek to invest in, but noted that as a government-owned entity, the fund would look with “extraordinary diligence” at “the entire universe or the entire globe and find which ones provide the best risk-return enhancements to our existing investment portfolio profile”.Capulong did not address either issue in his emailed response to AsianInvestor.

He noted that the statutory limits on most investment asset classes increased after changes to SSS’s charter came into effect in January 2019, as part of an overall effort to empower the pension fund's investment managers to make better asset-allocation decisions in order to meet its goals.

Emmanuel F. Dooc

Nevertheless, the timing of the decision to lift overseas allocations is far from ideal, local asset managers said, citing, for one thing, the recent partial inversion of the US yield curve which has sparked concerns about a recession in the world's biggest economy.

An inversion of the 10-year/3-month curve is considered one of the most reliable indicators of a potential US recession, according to research by the San Francisco Federal Reserve.

“SSS might want to delay, backpedal or reassess their overseas plans [in light of the inverted yield curve], but I think they made a decision to go ahead [with overseas investing as] a long-term strategy,” said the CIO of one Manila-based asset manager, who did not wish to be named.

The goal of the SSS is to improve its returns through overseas investing, but if recessionary pressures take a hold of the US and, by extension, the global economy, generating higher returns will definitely become more of a challenge for the pension fund.

In February, Dooc said that he aims to lift SSS’s return on investments to 7% by 2020 and to 9% by 2022. He noted that returns in 2018 totalled 5.8%, partly because of a "depressed domestic equity market", and made the case for increasing its foreign investments.