Maharlika Sovereign Wealth Fund: Everything You Need To Know

A sovereign wealth fund (SWF) is a state-owned investment fund consisting of money generated by the government from the country’s surplus reserves. SWF comes from various sources, such as state-owned natural resource revenues, trade surpluses, bank reserves, foreign currency operations, governmental transfer payments, and privatization money.

SWFs are created for targeted purposes. Some commodity-based SWFs in other countries manage the windfall from the disposition of natural for future generations’ benefit, as natural resources deplete and commodity prices become uncertain over time. Non-commodity-based SWFs, on the other hand, are designed to manage the accumulated foreign assets from trade surpluses and surpluses of state-owned enterprises to preserve the value of their capital and the return on investments.

As the Philippines continues to look for ways to hasten financial recovery, House bill No. 6398, also known as the Maharlika Investments Fund Act or the Maharlika Wealth Fund (MWF) was filed in Congress.

What is the Maharlika Wealth Fund?

The Maharlika Wealth Fund (MWF) seeks to establish a P275-billion state-owned sovereign wealth fund to maximize the profitability of investible government assets and support the current administration’s economic agenda.

The Maharlika Fund is patterned after the SWFs of other countries, such as China, Hong Kong, Singapore, South Korea, Malaysia, Indonesia, Taiwan, East Timor, and Vietnam.

This fund would draw resources from contributions from state pension funds, such as the Government Service Insurance System (GSIS), Social Security System (SSS), Landbank of the Philippines (Landbank), and Development Bank of the Philippines (DBP). Other annual contributions may also come from the Bangko Sentral ng Pilipinas (BSP), Philippine Amusement Gaming Corp. (PAGCOR), and the national budget.

Under the proposal, here is the breakdown of the contributions from various government financial institutions:

P125 billion – GSIS

P50 billion – SSS

P50 billion – Landbank

P25 billion – DBP

P25 billion – national government

How will the MWF be used?

The MWF funds will be used as investments for various outlets, such as foreign currencies, fixed-income instruments, metals, equities, domestic and foreign corporate bonds, mutual and exchange-traded funds, commercial estate, including luxury real estate and luxury condominiums, and infrastructure projects.

The MWF will adhere to the Santiago Principles, which are the 24 generally accepted principles and practices agreed to in October 2008 in Santiago, Chile.

The stakeholders of the fund are committed that the sovereign wealth fund will comply with the applicable regulatory and disclosure requirements in countries in which SWFs invest and that the SWFs will have a transparent government structure providing operational controls, risk management, and accountability.

Former President and Rep. Gloria Macapagal Arroyo noted that this SWF is a “valuable source.” According to her, the President can count on advice from the Department of Finance, and “historically,” our country has a good track record insofar as the finance secretaries are concerned.

Arroyo added that the operations of the MWF can “transparently be observed, tracked, and monitored” here and abroad.

Maharlika Investment Corp. will be administered by a nine-man board of directors, all of whom will be representing the contributing government financial institutions. The board will also include two independent directors.

Maharlika was a term used by the late former President Ferdinand Marcos Sr. as his propaganda tool to refer to his guerilla unit during World War II.

In the bill’s explanatory note, the Maharlika Fund could be used to manage foreign reserves and attract direct investments. It cited the success of the Indonesia Investment Authority and Singapore’s GIC.

The bill was filed by majority leader Manuel Jose Dalipe, senior deputy majority leader Ferdinand Alexander Marcos, Tingog Representatives Yedda Marie Romualdez and Jude Acidre, House Speaker Martin Romualdez, and House appropriations panel senior vice chair Rep. Stella Quimbo.

Why is MWF controversial?

One of the reasons why MWF raises concern among critics is the current economic conditions of the Philippines, like the budget deficit, mounting debts, and high inflation rate.

Action for Economic Reforms Coordinator Filomeno Sta. Ana III explains that the SWF only works when the country has a huge surplus. For instance, in Norway, Sta. Ana says that the surplus from its extractive industries has been accumulated over the long term. Norway has the largest SWF in the world, providing $250,000 for each Norwegian citizen because of its oil and gas profits.

Senator Imee Marcos, the sister of the President of the Philippines, also questioned the idea of the bill due to the economic turmoil. She told the media that investing in the MWF is quite a high risk as the global economy is so bad. She also added that foreign models like that of Norway may not be applicable to the Philippines.

Another reason why the Maharlika Wealth Fund is controversial is the story of the 1Malaysia Development Berhad (1MDB) corruption scandal. Former Malaysian Prime Minister Najib Razak was found guilty of pocketing billions from Malaysia’s SWF in 2020.

Senator Jinggoy Estrada also expresses his concern over the Maharlika Fund. While he is not against the bill, they still have to see the need for it.

According to Enrico Patiga Villanueva, senior lecturer of economics at the University of the Philippines Los Baños, it is better to work toward unifying the GSIS and SSS instead because there are already fund managers in the two institutions.

A Change.org petition titled “Hands off our SSS and GSIS contributions, NO TO House Bill 6398!” was launched by netizens to pressure Congress to prevent the passage of this bill.

GSIS and SSS dropped as Maharlika Fund Backers

On December 9, 2022, the House Committee on Appropriations officially dropped the Government Service insurance system (GSIS) and Social security system (SSS) from the sources of funds for the proposed MWF. This leaves the Bangko Sentral ng Pilipinas (BSP) as the main contributor to the Maharlika Fund.

Under the revised Section 9 of the bill, Landbank and DBP will continue to be tapped for the contributions, but the National Treasury of the national government will no longer be sourced for funds.

The removal of GSIS and SSS was because of the public pressure to remove these two state pension funds as sources for the MWF.

This leads to the proposal of a 50-50 sharing scheme between the BSP and the national government for the initial year of the MWF, which is envisioned to raise more funds for large government projects.

However, the MWF bill is sent back to its mother committee, the Committee on Banks and Financial Intermediaries, for the approval of the changes. The bill was also expected to be approved on the second reading by the House of Representatives before the holiday break.

Where to Invest during this Time?

As we are facing difficult times ahead, we need to channel our assets elsewhere. Most investors and financial experts would highly recommend investing in real estate, particularly luxury real estate or luxury condominiums.

House and lot properties for sale are considered a hedge against inflation. According to studies, real estate, especially luxury homes in the Philippines, appreciates its value annually between 3% to 5%. If you own a luxury condo, you can utilize it by renting it, thus, having a stable source of passive income. Lastly, investing in luxury houses in the Philippines will improve your portfolio.

Diversification and investing in luxury homes Philippines can lead to asset growth.

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