What to expect from the Philippine sovereign wealth fund

Written by Kapronasia || July 26 2023

Philippine President Ferdinand Marcos on July 18 signed a bill creating the Philippines’ first sovereign wealth fund, a move aimed at accelerating infrastructure and economic growth in one of the largest countries in Southeast Asia. The Philippines follows Singapore – whose two sovereign wealth funds are both success stories – as well as Indonesia (so far, so good) and Malaysia (failure) with observers divided over whether Marcos’ Maharlika Investment fund will deliver on its promises or be less successful.

Skeptics of Maharlika Investment Fund can point to the Philippines’ suboptimal rankings when it comes to transparency in the business environment, corporate governance anso on. The 2022 Corruption Perceptions Index, which scored 180 countries worldwide, gave the Philippines a score of 33, making it 116th among 180 countries listed in the index. For its part, Indonesia was ranked 34, Malaysia 47 and Singapore 83. However, Indonesia has been much more successful with the Indonesia Investment Authority so far than Malaysia’s 1MDB ever was.

 We reckon that 1MDB was so catastrophic, whether from a financial or reputational perspective, that a repeat scenario in one of Malaysia’s neighbors is unlikely. That’s not to say it will be all smooth sailing for the Maharlika Investment Fund, but we do not anticipate a scandal like 1MDB ensuing: The political stakes are too high for Marcos, and sovereign wealth funds face greater scrutiny overall after 1MDB.

The Maharlika Investment Corp. has an authorized capital stock of 500 billion pesos ($9.2 billion), divided into five billion shares. 75% of these will be common shares worth 375 billion pesos subscribed by the national government. The rest will be preferred shares available for subscription by state agencies, corporations and financial institutions. It will be allowed to invest in instruments like foreign currencies, tradable commodities, fixed income securities, and stocks to generate income to help finance infrastructure projects.

For the fund’s seed capital, state-owned Land Bank and Development Bank, will spend 50 billion pesos and 25 billion pesos, respectively. The national government will provide another 50 billion pesos, and it may source its contribution to the wealth fund from privatization proceeds and the gaming agency’s income.

Bonds issued by the Maharlika Investment Corp. will not be guaranteed by the national government but rather secured by its own assets. These bonds will pay higher interest rates than state-issued treasury bills, which means more attractive yields for investors.

On the other hand, the funds including bond proceeds will likely be invested in various assets. These include foreign currencies, fixed-income instruments, domestic and foreign corporate bonds, joint ventures, mergers and acquisitions, real estate and infrastructure projects, Finance Secretary Benjamin Diokno has said.