Philippines' GSIS eyes more offshore exposure

The $20 billion state pension fund is in touch with a growing number of asset managers about the possibility of expanding its international portfolio beyond bonds and equity ETFs.
Philippines' GSIS eyes more offshore exposure

The Philippines’ state pension scheme for state employees may increase its international equity allocation via exchange-traded funds next year, and other offshore assets are also under consideration.

The Government Service Insurance System (GSIS) is tentatively speaking to asset managers about various types of foreign investments. It now has more scope to go offshore, having secured approval from its board in late September to raise its equities allocation limit to 30%, from 20%.

The $20 billion fund has just 3% of its current equity portfolio allocated overseas and it has not given out mandates to foreign managers since the global financial crisis hit in 2008. It has adopted a cautious approach since exiting its overseas investments in 2011 after they took a hit during the market crash.

But it did not discount the possibility that it could expand its international exposure in the near future.

Robert Vergara, president and general manager of GSIS, told AsianInvestor: “At $20 billion and growing, it becomes difficult to find attractive opportunities in the Philippines. If we go offshore, we need to do it very slowly so that if we have a misstep, it won’t have a significant effect on the portfolio.”

The fund’s current asset allocation is: 46% in domestic fixed income (90% of which is in Philippine government bonds), 18% in domestic equities, 26% in loans to members, 4% in domestic infrastructure, 3% in offshore equities and bonds, and the balance in cash.

GSIS late last year started investing in active North American and European exchange-traded funds, run by its in-house team. Vergara said it may allocate more to offshore ETFs next year for diversification purposes.

When asked when it would start to invest overseas again beyond using ETFs, Vergara said he preferred not to specify a time frame.

But GSIS has been attracting more attention from international managers, including specialists in private equity, real estate and arbitrage strategies. “They see we have a growing pool of savings increasing at a respectable rate,” Vergara said. “We are now becoming a stop for foreign managers.”

He noted that investment houses such as Carlyle or Blackstone now come to the Philippines to meet his team, rather than going straight to Hong Kong, Singapore or South Korea, as was the case in the past.

“Now we have the opportunity to get exposure to various investment opportunities,” noted Vergara. “We are building our database of managers. We meet the managers and study them, so that when the right time comes for us to invest offshore we can have a meaningful conversation with them to see how they could fit into our portfolio.”

“The time will come when it will be worthwhile to invest offshore again. That time is sooner than it was when our assets were at $10 billion in 2010," he said.

GSIS made its first foray offshore in 2008, with a view to handing $1 billion to external managers. It put $600 million into balanced funds run by ING Investment Management (subsequently replaced by Pimco) and Credit Agricole Asset Management (now Amundi), as reported. It did not invest the other $400 million due to the financial crisis taking hold. The fund redeemed these investments in 2011, making 4-5% return in total, and focused instead on building its domestic portfolio.

GSIS is planning to boost its local infrastructure exposure. It has $400 million with Macquarie in a domestic core infrastructure projects fund. The infrastructure investment is expected to be fully invested soon, when the fund will look at another round of allocation to local infrastructure. Whether it will open the process for other firms to participate will be determined later. 

“We recognise there are lots of opportunities in domestic government and private infrastructure investments,” said Vergara. “We are barely scratching the surface.”

As for domestic equities, local managers collectively run P24 billion ($516 million) for GSIS. They are BDO Asset Management, Metrobank, BPI AM, RCBC, Philam AM, ATR Kim Eng AM, First Metro AM and Philequity Management.

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