Wealth funds and pensions

COMMENTARY

Clarifying ownership then leads to the contention that owners of pension funds do want controlled safeguards over a pension fund’s management and investments.

On that score, glossing over the fact the "Maharlika Wealth Fund" proposes seeding its funds from the Social Security System and the Government Service Insurance System riles me up.

Can the government actually do that even without officially informing me beforehand about such intent?

Admittedly, the question is cocky. If only for the fact our so-called modern democracy is wherein we citizens elect lawmakers to undertake activities of government on our behalf, including management of public coffers.

Still, I believe asking such a question necessary, even before we entangle ourselves in the thorny thicket that is the MWF, the folksy name for this country's first-ever sovereign wealth fund if ever it becomes law.

Here, it's because asking it raises the fundamental question about who the real owners are of pension funds. Is it government or pension fund members?

On this, using SWF scholar Angela Cummine words, I strongly assert that "money in public pension funds ultimately belongs to its members on whose behalf the state makes contributions, not the government investing those pension assets on their behalf."

Clarifying ownership then leads to the contention that owners of pension funds do want controlled safeguards over a pension fund's management and investments.

Why? In order for pension funds to safeguard members' money and benefits funds must be invested more "conservatively."

In turn, "conservative" prudence over a pension fund restricts a pension fund's relative wealth-creating potential.

An SWF essentially is to enable a portion of our country's national capital to be invested in higher-risk assets to yield higher returns than is typically possible with how existing government funds are currently invested.

SWF experts, in fact, say SWF is unlike what a central bank, a government treasury, and a public pension fund do with money.

All of these government financial bodies seek to manage financial assets to serve other policy goals other than seeking high returns on investments, unlike an SWF.

The mandate of a central bank for instance, as Bangko Sentral Governor Felipe Medalla emphasized recently, is restricted to managing reserve assets for safety and liquidity, not return.

Anyway, the talk here about pension funds and the MWF is but only one of the troubling questions recently raised about the MWF's creation.

Now, even if there are such troubling issues it doesn't at all mean we don't see that the pooling of different types of government revenues — whether resource windfalls, surplus foreign reserves, privatization proceeds, or public pensions — into an SWF won't dramatically boost the country's bottom line.

Such potential blessings, however, don't mean we also ignore unforeseen burdens arising from creating an SWF like the nagging suspicion the MWF can be a potential source of large-scale corruption.

Dismissing as mere noises any valid objection about the MWF's creation won't make for a political consensus on three crucial things about what a decent SWF should be: the type of underlying capital used to seed a fund; successful investment of fund assets; and disciplined, sustainable saving and spending of fund earnings over time.

Meanwhile, unsolicited advice for clueless government pension fund managers seeking a way out of using pension funds for the MWF.

Quite a number of SWFs do use pension funds but only those funds are classified as "reserve" or "contingent" funds.

Many governments created such fund types to cover potential shortfalls in their pension fund liabilities and are financially distinct from the main pension fund.