Under the leadership of seasoned banker Jose Arnulfo Wick Veloso, the state fund Government Service Insurance System (GSIS) has been making overly aggressive and, thus, risky investments, which its members, who are state workers, want investigated.

Its 2023 financial papers showed total assets of P1.67 trillion, but insurance contract liabilities with members reached P2.09 trillion.

While GSIS can invest its huge collections from 2.7 million members, there are certain criteria that it is required to follow, such as investing in companies with a market capitalization of P15 billion or more.

Recently, questions were raised about a GSIS plan to invest pension money into the Neuberger Berman Credit Opportunities Fund II, a firm previously owned by the bankrupt US investment bank Lehman Brothers.

Such risky investments sparked the filing of House Resolution (HR) 1705 last May to probe the GSIS for possibly exposing its members to unreasonable capital risks.

The legislators’ worry stemmed from the foreign fund’s association with Lehman Brothers, which filed for bankruptcy in 2008 amid the subprime mortgage crisis in the United States.

The proposed NBCOF II investment underscores the importance of thorough scrutiny and adherence to legal and ethical standards in managing the GSIS funds, according to one of the proponents of the House probe.

The GSIS Board of Directors was also asked to fulfill its fiduciary duty to safeguard the fund from unwarranted risks, as any investment decision must prioritize the welfare and financial stability of the government employees who rely on these funds for their future.

A 2023 Commission on Audit (CoA) report also indicated that GSIS invested a total of P2.3 billion in three companies, which resulted in a valuation loss of P251.371 million.

The report said the GSIS invested in the stocks of companies that have no proven track record of profitability over the last three years and have not paid dividends at least once over the same period, contrary to the requirements of the law.

The CoA said the investments exposed a significant amount of members’ contributions to high risk, so the actuarial solvency of the fund may not be ensured.

CoA then mentioned the legislative intent of the stock investment parameters under the provisions of Republic Act 8282, or the Social Security Act of 1997, the then-charter of the other state fund Social Security System, an agency similar to GSIS.

It cited Section 26 governing the investment of reserve funds, which requires earnings of an annual income not less than the average rates of treasury bills or any other acceptable market yield indicator.

CoA’s report found that, as a result of non-compliance with the twin requirements set forth under the law in providing liquidity, safety/security and yield of stock investment, “the GSIS took the high risk of investing a significant amount of its members’ contributions, wherein the actuarial solvency of the fund may not be ensured.”

In conclusion, the CoA required GSIS to plan the recovery of the stock investments from the three companies “at a term not disadvantageous to the Fund.”

Also cited in the report is an investment of P1.45 billion in non-traded preferred stocks without the company where the infusions were placed complying with the follow-on offer tor secondary offer and the build-operate-transfer (BOT) approval requirement under the law.

Another purchase of common stocks worth P1.549 billion was viewed by CoA as splitting, since the “transactions were made on two consecutive days, which necessitated prior approval of the BOT requirement.”

An investigation into the actions of the GSIS is necessary, since the contributions of state workers may have been placed in jeopardy as a result of the high risks taken with the use of the funds by its leadership.